Alexander M. Sanchez, secretary of the Department of Labor, Licensing and Regulation, and his staff will consult with industry experts during the legislative offseason to find ways to open more of the housing market to interested buyers.

“I think we have to look at something to put that housing stock back on the market and afford people the chance to purchase houses, even if they are short sales,” Sanchez said last week during an interview with Daily Record reporters and editors.

He said it was too soon to discuss any potential remedies to the backlog of potential short sales — sales of homes for less than the amount owned on their mortgages — but said he hopes to have legislation ready for the General Assembly’s consideration next year.

“I don’t think you can function if half of your housing stock is basically off the market, sitting vacant, and no one is trying to push it forward,” he said. “That depresses the value. It limits your options. It can devastate neighborhoods that are underwater.”

In the last quarter of 2009, nearly 23 percent of the 1.36 million outstanding mortgages in Maryland were estimated to be underwater and another 5 percent were getting close, according to a Federal Reserve economist.

The problem is one of particular relevance to Sanchez, who was appointed to his post by Gov. Martin O’Malley only six months ago, and confirmed by the Senate in February. He moved from Alexandria, Va., to an apartment in Baltimore while looking for a permanent home for him and his family.

Sanchez said when he was house hunting, Realtors told him to avoid properties that were underwater because a sale would happen slowly if it happened at all.

“If you look at areas that had a bubble in value and then came back down, you’re going to see most of those houses underwater,” Sanchez said. “It’s a form of economic red-lining. If every Realtor thinks they’re not going to make money on that, they’re going to steer you away from there. That could be pretty devastating.

“I don’t think any state has really dealt with that. I think Maryland is a little bit unique in that’s our situation with so much stock that is not moving. We’ve got to figure out some way around that.”

The General Assembly agreed on April 12, the last day of their session, to place tighter restrictions on lenders that want to foreclose on homes. They will be required to prove they attempted to fit homeowners into government-run mortgage modification programs and pay a $300 fee to file each foreclosure.

Homeowners, for a $50 fee, will be able to request a face-to-face mediation session with lenders to attempt to work out a modification of their own. The new law goes into effect July 1.

The Maryland Department of Housing and Community Development expects 36,344 foreclosures to be filed in the coming fiscal year, which begins July 1. Of those cases, state policy analysts expect 12 percent, or 4,361, to go through the mediation process.

Unemployment insurance

Sanchez also warned that business owners will see the same high level of unemployment insurance taxes next year, despite protracted negotiations this winter over a bill that will bring the state more than $120 million in federal aid to pay jobless benefits.

The legislation was one of O’Malley’s top priorities in the 2010 legislative session and the subject of much haggling by lawmakers, administration officials and business and labor interests.

“It was dead so many times we stopped counting,” Sanchez said.

O’Malley had proposed expanding jobless benefits to qualify the state’s Unemployment Insurance Trust Fund for $126.8 million from the U.S. Department of Labor. To sweeten the deal for businesses, he proposed rolling back unemployment taxes in 2010 by $83 million.

But business groups balked, citing concerns over the long-term cost of the benefits expansion. A much-amended bill, with offsetting benefit cuts and without the tax cuts, passed in March.

O’Malley was spurred to action in the fall when the trust fund balance dropped so low that the tax rates for businesses shot to the highest level possible. The minimum rate in 2010 is $187 per employee, compared to $51 last year. The 2010 rates top at out $1,147.50 per employee.

Businesses will pay based on the same scale next year, Sanchez said.

Cracking down

The department is also gearing up to crack down on businesses that deliberately misclassify employees as independent contractors or pay them under the table to avoid paying unemployment taxes, workers’ compensation and other liabilities.

“All the things you justly earn as a Maryland employee, they steal from you if you’re misclassified,” Sanchez said.

The department will soon add a staff of investigators and forensic accounts to monitor construction, landscaping and home health care companies, he said.

In 2008, auditors found more than 7,000 unreported employees and $34 million in unreported wages. The tallies for 2009 rose to 10,265 employees and $59 million in wages.

“That’s without the enforcement, that’s with just the publicity of what we’re doing and having more folks call us up and say, ‘I’m obeying the law, but my competitor isn’t,’” Sanchez said.

Upbeat on jobs

Sanchez was upbeat about the March jobs report, which showed payrolls in Maryland expanded more than in any other state.

“Hopefully we’ve seen the depths to which it [unemployment] will go, and it will start to move in the right direction,” he said.

The unemployment rate fell to 7.7 percent in March after two consecutive months at 8.2 percent.

To continue that trend, Sanchez said the state needs to increase the number of workers who can compete for “middle-skill jobs,” or those that require more than a high school diploma but less than a four-year college degree, such as machinists and police officers.

“We want to create a really healthy economy, and you can’t do that with an economy that looks like an apple core,” he said. “We have almost that in Maryland and we’re certainly heading that way nationally, where you have a good number of high-skill jobs and employees, and a good number of low-skill jobs and employees, and the middle is where we’re really hurting.”

As part of the Skills2Compete campaign, an initiative launched by the National Skills Coalition, Sanchez said his department and other state agencies will be aligning their work force development programs to focus on nurturing a work force to fill such jobs.

“I think the main thing we have to do is get folks back to work,” he said. “I don’t think there’s any higher priority.”