By Daniel Leaderman and Jon Sham
BALTIMORE – For many residents, Belair-Edison is less like a city neighborhood and more like a small town.
Just a couple of blocks from the blue-light police cameras on Belair Road in Northeast Baltimore are houses with porches and front lawns, and trees that line the streets.
“We have grass, we have the park, we have a really strong neighborhood association,” said Ebony Alston, 28, a fifth-grade teacher who lives on Parklawn Avenue. “People speak to each other on the street.”
But lately, Belair-Edison has also had “For Sale” signs. Lots of them. Alston says she’s seen more since the beginning of 2009 than in the two years before.
Home sales are slow. Prices are down. Houses take longer to sell and spend more time on the market, so the signs stay up longer. But there’s a second, less noticeable problem affecting houses in Belair- Edison.
This area of Northeastern Baltimore saw more foreclosure filings than any other neighborhood in 2008 and the first months of 2009, according to the Baltimore Neighborhood Indicators Alliance. Local housing counselors say the high foreclosure rate was caused in part by increased sales during the housing boom coupled with a decrease in income during the recession, leaving many new homeowners unable to pay the mortgage.
Foreclosures have always been a fact of life in Baltimore, but in recent months the problem has festered and grown as the sub-prime mortgage crisis and the economic recession have driven home values down and foreclosure rates up.
A few miles away from the shady lawns of Belair-Edison, the number of families seeking foreclosure prevention assistance at St. Ambrose Housing Aid Center, a non-profit agency, has doubled in the past two years and could double again by the end of 2009.
“We’ve seen our caseload go from 700 (families) a year, to 1,400 last year,” said Vincent P. Quayle, executive director of St. Ambrose. “This year we’re probably going to see 3,000.”
“Right now at St. Ambrose I’ve got 10 people working on this,” Quayle said. “We used to have two counselors.”
The signs of economic trouble were apparent in Baltimore’s housing market well before the stock market plummeted in the fall of 2008.
The median price of a Baltimore house decreased nearly 35 percent from its peak in July 2008 to last January, according to the Maryland Association of Realtors.
In April 2008, the Maryland Legislature took emergency action to slow foreclosures by passing a law to lengthen the foreclosure process, requiring lenders to wait 90 days after a borrower defaults on a loan before filing a foreclosure action. Lenders are also required to notify homeowners that they intend to foreclose 45 days before filing.
Quayle credits this legislation for a temporary drop in the number of foreclosure filings in the second and third quarters of 2008, but he said the results were only temporary. For many homes, the grace period eventually ended and the foreclosure process continued.
Initial foreclosure filings — the first step in the foreclosure process, and not always a sign that the owner will lose the house — for residences in Baltimore dropped from 1,474 in the first quarter to 511 in the second, but then rebounded in the second half of the year.
The fourth quarter of 2008 saw 1,457 initial filings, bringing the annual total to 4,187, according to the Baltimore Neighborhood Indicators Alliance.
In the 41 years it has been operating, St. Ambrose has provided housing counseling to more than 100,000 low- and moderate-income families in Maryland and now serves about 28 percent of families needing assistance statewide, according to the Maryland Department of Housing and Community Development.
In Quayle’s experience, there used to be three main reasons why people lost their houses: They got sick, they lost their jobs or their marriages failed. That was true until about five years ago.
“Five years ago, my chief counselor came to me and said, ‘Vinnie,’ he said, ‘something different is going on out there,'” Quayle said. “We’re beginning to see families, not for those reasons, but we’re beginning to see families who could never really afford to buy the house in the first place.”
Two central factors contributed to why thousands of good people got tangled in this housing crisis, Quayle said. One is a shortage of rental housing.
With few exceptions, “Cities like Baltimore have not built rental housing in the last 40 years for poor people,” he said. “Poor folks who are renting are living in pretty shabby quarters …(they are) pretty desperate to get out.”
The other factor, Quayle said, is that “the industry came up with gimmicks to make it easier for folks like this to buy houses.”
Gimmicks like no-interest loans, or loans where the initial calculation of the monthly payment includes just the monthly mortgage, leaving out the cost of taxes or insurance. That means an unexpectedly large payment later. People on fixed incomes or living paycheck to paycheck didn’t catch on, Quayle said.
One disturbing trend even prompted Baltimore to take legal action.
After a rise in foreclosure activity in 2007, the city filed a lawsuit against Wells Fargo, alleging predatory and illegal mortgage lending practices.
The complaint, filed in January 2008, accuses Wells Fargo of “targeting of an area for the marketing of deceptive, predatory, or otherwise unfair lending practices because of the race or ethnicity of the area’s residents.”
In 2005 and 2006, Wells Fargo’s foreclosure rate in Baltimore’s African-American neighborhoods was double the overall average rate for the city while its rate in white neighborhoods was less than half the city average, according to the complaint. The city is seeking financial compensation, citing lost property tax revenue.
The staff at St. Ambrose has seen another sign of trouble, Quayle said: a demographic change in clientele. “We’re seeing more stable people, more middle-income people. Their problem is they bought the home for $400,000, now it’s worth $250,000… They’re trying to figure out what to do.”
Back in Belair-Edison, the problem is also spreading.
“I think that there are currently two foreclosure crises,” said Mary Warlow of Belair-Edison Neighborhoods, Inc., a non-profit organization that provides housing counseling, promotes local businesses, and seeks to build a strong community in the neighborhood.
“One is the complete and total meltdown as a result of the sub-prime mortgage craze. The other that we’re seeing more of is people being laid off. We’ve seen a definite uptick in the number of people who are behind on their mortgage due to a decrease in income.”
Even homeowners who have kept their jobs may be earning less money than they used to.
Many Belair-Edison homeowners are “workforce people, hourly employees,” Warlow said. They might have mortgage rates based on their working about 60 hours a week, but are now only working about 40.
The issues that housing counselors face at Belair-Edison Neighborhoods Inc. mirror those at St. Ambrose.
“Five years ago we only did pre-purchase counseling for first-time home buyers,” Warlow said. “These days we see mostly default and delinquency.”
If homeowners have fallen 30 days behind on payments, they can try to negotiate with their lender to lower monthly payments or agree to a special plan to repay the delinquent amount on top of the regular payments, Warlow said. “Loss mitigation” is the term for that process.
Sometimes there just isn’t enough time to really help. “Homeowners can start loss mitigation, but the foreclosure process goes on,” Warlow said. “As long as we can keep people less than 90 days delinquent, we can work on a modification plan.”
Homes can easily get stuck in foreclosure cycles, according to both Quayle and David McIlvaine, president of the Greater Baltimore Board of Realtors.
The tax records of a recently foreclosed house will often show several foreclosures over the past few years, McIlvaine said. “It’s amazing how these houses turn over.”
Quayle, who has observed similar patterns, says much of the blame lies with investors, who buy houses either to rent them or to renovate and sell at a profit.
“In lots of neighborhoods there’s a growing number of vacant houses that have been foreclosed on. Now what happens to them?” Quayle said. “Investors … the same guys who put these people into houses they can’t afford, they’re out there trying to buy these houses from the banks at 30 percent of what they’re worth.”
A large part of the St. Ambrose operation is dedicated to stopping this cycle. “We have a program to try to beat these investors,” Quayle said.
St. Ambrose has an arrangement with the Federal Housing Administration that allows the organization to buy vacant FHA homes at a discount. St. Ambrose refurbishes the houses and then sells them to new homeowners.
The organization has bought houses for 30 years and for the past decade has bought about 35 a year. “We’re only allowed to make so much profit (under the agreement with FHA),” Quayle says, “so we put a lot of money into the houses.”
“The idea is to save homeownership,” he says. “That’s basically what St. Ambrose is all about. We want to save homeownership.”
Nneka Shoulds, 23, is delighted with the St. Ambrose house she purchased last year. The three-bedroom Belair-Edison rowhouse was “move-in ready,” Shoulds said. “Washer, dryer, central air, new windows… I didn’t have to do anything.”
When Shoulds saw a mouse this winter, St. Ambrose even sent someone to help figure out how it got into the house. “They said they were coming through the dryer drain,” Shoulds said. “They came and patched it up.”
Quayle says the housing season usually picks up around March and April, about when taxpayers start getting their refunds and can afford to put a down payment on a home. Even so, he doesn’t expect St. Ambrose to clear their typical profits this year.
Most years, St. Ambrose nets about $250,000 from the sale of these houses — funds it uses to support their other programs. But this year, now that home sales are slow and prices have dropped, Quayle suspects St. Ambrose might only break even.
But struggling housing aid centers have been getting new support. The federal government, under President George W. Bush’s initial economic stimulus package, provided just over $4 million to the city of Baltimore for housing aid, and St. Ambrose expects to receive between $1 million and $1.5 million of that money, Quayle said. The city of Baltimore is slated to receive additional money for housing from the Obama administration’s stimulus package.
But the problem that many thought limited to the boundaries of the city has begun to spread.
“Historically, Baltimore City had been a hotspot for foreclosures,” said McIlvaine. “Now we’re seeing a lot of (foreclosures) crossing over into the counties.”
McIlvaine, who deals in foreclosure sales, said he recently sold a foreclosed property in Anne Arundel County valued at more than $800,000. “We’re seeing it spread out over all economic strata.”
Still, McIlvaine said, investors who buy and sell houses are still buying, despite slower sales. “They need inventory, they need to keep moving forward,” he said. “The profit margin may not be as high as it was four or five years ago, but they may have a buyer in mind, or another investor …(and can) make a quick $10,000.”
And even in a recession, the state of the real estate market could be a boon to some. “First-time homebuyers are looking to do very well,” McIlvaine said. “Low interest rates, high inventory, ever since the stimulus package…buyers are getting more confident.”
