Study: Foreclosures will worsen in Prince William

The number of foreclosures in the Washington region is projected to worsen in the coming months, despite the strong federal job market, according to a report from the non-profit Urban Institute.

"Washington's relatively strong economy … moderates the impact of foreclosures on the region, but many households are still facing the loss of their home due to unaffordable loans and family economic insecurity," according to the 2009 update to the annual report, Housing in the Nation's Capital.

As of June, the report finds, "more than one in 10 mortgages in the region was in trouble." The two most challenged counties? Prince George's and Prince William, the data shows. While the rate of foreclosures across the region was figured at 2.7 percent, the number for Prince William was higher, at 3.7 percent. Nationally, the figure for June stood at 2.9 percent.

Subprime loans, or those issued to higher-risk borrowers with poor credit, are blamed for the uptick in foreclosures regionally and in Prince William that began in 2007.

"Subprime loans have driven this initial surge in the region's foreclosures," the Urban Institute found, "and they are still disproportionately represented in the foreclosure inventory … The foreclosure rate for subprime loans reached 12 percent by June 2009, a dramatic change compared with the 1.9 percent facing foreclosure in January 2007."

With Friday's announced national unemployment rate of 10.2 percent—the highest since 1983—any chance for quick recovery in the regional housing market would seem slight.

"More homeowners," according to the report, which was released before the latest 10.2 percent unemployment figures were announced, so findings will be all the more multiplied, "will have reduced income or lose their jobs and will struggle to keep up their mortgage payments. This has sobering implications for the chances of successful loan modifications. In these cases, just changing the loan terms will not compensate for a sudden loss of income or prolonged unemployment."

The Urban Institute's report of a housing drag mirrors what Prince William finance officials predicted a couple weeks ago. In a fiscal retreat, finance director Chris Martino told supervisors an upcoming mortgage rate reset from loan contracts that were entered into five years ago, could drive the locality's foreclosure rate higher.

On an Urban Institute list that compares mortgage performance for the month of June among 20 counties and cities, Prince William came in fourth for foreclosures, at 3.7 percent. Ahead of Prince William were Prince George's, at 5.2 percent; Manassas City, at 4.5 percent; and Charles County, Md., at 3.9 percent.

Fauquier County, by comparison, had a 2.6 percent foreclosure rate for that month; Stafford County, a 2.3 percent rate; Fairfax County, 1.8 percent; and Loudoun County, 2.2 percent.

Staff writer Cheryl Chumley can be reached at 703-670-1907.