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Foreclosures double in Washington area

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By Renae Merle
Washington Post Staff Writer
Wednesday, October 28, 2009

The number of Washington area homeowners in foreclosure has more that doubled in the past year, according to a report to be released Wednesday that shows the problem remains most acute in a few counties and could get worse as more borrowers fall behind on their payments.

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About 2.7 percent of local borrowers are in the foreclosure process, meaning that the bank has started the legal process to take back the property, according to the report by the Urban Institute, a nonprofit policy research group based in Washington. That was slightly below the national average of 2.9 percent.

But that is up from about 1.4 percent in June 2008 and 0.5 percent in June 2007, according to the report. (The report excludes Howard and Anne Arundel counties.)

"We were surprised that the D.C. region -- with one of the strongest economies in the country and less subprime lending -- would see such an increase," said Kathy Pettit, a lead researcher for the report.

But the problem is far worse in three counties: Prince George's, where 5.2 percent of borrowers are in foreclosure; Charles with 3.9 percent; and Prince William with 3.7 percent. These areas had high concentrations of minority borrowers who were more likely to take out subprime loans, according to the report.

The foreclosure problem locally is not nearly as acute as it is in hard-hit places such as Arizona and Nevada. In fact, the inventory of homes on the Washington market has steadily declined over the past few months and prices have begun to stabilize, according to recently released data. Home prices in the Washington region rose 1.2 percent in August compared with the previous month, according to the S&P/Case-Shiller Home Price Index released Tuesday.

But the crisis is evolving, and not enough is being done to help borrowers who have lost their homes find new housing, the report says. An increasing number of borrowers in trouble have prime loans, which have traditionally been considered safer than the risky subprime mortgages that helped spark the crisis, according to the report.

Banks have become more willing this year to negotiate loan modifications that lower borrowers' payments, said Marian Siegel, executive director of Housing Counseling Services, a D.C.-based nonprofit. "Unfortunately, at the same time, unemployment and reduced employment are becoming a bigger problem," she said. "If you don't have the income to support the loan, there are very few options."

It has also become much more likely that borrowers who enter the foreclosure process will lose their homes. In 2004, 15 percent of District borrowers who entered foreclosure lost their homes. By 2007, according to the most recent data available, 47 percent who entered the process ended up in foreclosure. Another 34 percent had distressed sales, including short sales, within a year, which means the homes were sold for less than the outstanding mortgages and without generating a profit for the sellers.

And foreclosures could rise as increasing numbers of borrowers fall behind on their mortgages, according to the report. In June 2009, about 104,200, or more than 8 percent, of the region's outstanding mortgages were delinquent. That is up from 6 percent during the same period last year and 4.5 percent in 2007.

Almost half of those borrowers have already missed three or more payments, making it more difficult for them to avoid foreclosure, the report says. The backlog of seriously delinquent borrowers could pile another 44,000 homes onto the market in the coming months, the report said. And that does not include the 15,200 bank-owned properties in the region, many of which have yet to be put up for sale, Pettit said.

"What we're concerned about is that the housing market has just really begun to stabilize," she said. Dumping more distressed properties on the market could disrupt that recovery, she said.

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