Foreclosures

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Foreclosure Articles

Easy Credit and Hard Times

Bring a Flood of Foreclosures

PETER T. KILBORN, New York Times

INDIANAPOLIS, Nov. 23 - The epitaphs of foreclosed homes have spread like crab grass across Indianapolis.

On one block of Dearborn Street on the city's Near East Side, half of the one- and two-family row houses have been shuttered. "This property was found vacant," seven-month-old stickers on one say, "and in accordance with mortgage agreement, HUD or V.A. guidelines, has been secured."

Seven miles northwest of downtown, in the tidy young subdivision of Lakeside Manor West, plywood covers two windows of a house with beige vinyl siding and touches of brick. An empty Fanta bottle lies on the vinyl floor of the foyer, and bits of debris cover the living room carpet.

"Warning," the notice beside the front door declares. "This is the property of the United States government."

Sixty-eight percent of all American families own homes, the most ever and a sizeable increase from 64 percent a decade ago. But in another aftershock of the bingeing 1990's, merchants of the dream have become its morticians. More mortgages than ever are being foreclosed, and more homes repossessed.

Nowhere is the problem more severe than in Indiana, long a leader in home ownership. At midyear, the Mortgage Bankers Association of America found 2.22 percent of Indiana's home mortgages in foreclosure, the most for any state, a trend experts attribute to the state's loose lending regulations and its rising unemployment rate, the byproduct of a struggling manufacturing economy. The home ownership rate here has slipped to 72 percent from 74 percent.

All states are affected. In the three months that ended in June, the association reports, creditors across the country began foreclosing on 134,885 mortgaged homes, or about 4 in every 1,000 the highest rate in the 30 years that the association has been monitoring mortgages. Creditors' backlogs of foreclosed homes reached 414,772, another record.

Foreclosures among the 26.4 million families with sound enough credit to get conventional loans are rare but growing. Since late 1999, as the boom was slowing, the association reports, the number of foreclosed conventional loans has climbed 45 percent, to 76,526, the highest level in 11 years.

They are much higher among low- and moderate-income families with so-called subprime loans higher-interest-rate loans made to borrowers with imperfect credit. Of their 5.4 million mortgages, 150,000 were being foreclosed in June.

"We're seeing the implications of reduced standards that subprime lenders applied," said William Apgar, the federal housing commissioner in the Clinton administration, now a senior scholar at the Joint Center for Housing Studies at Harvard. "The expectations were that we would see more fail, and now we're seeing them fail."

Mr. Apgar said that people with subprime mortgages, which were rare five years ago but are commonplace now, were eight times more likely to default than those with prime, conventional mortgages.

With the rise in foreclosures, record numbers of families have applied to hold on to their homes under Chapter 13 of the federal bankruptcy code. At midyear, the Administrative Office of the U.S. Courts reports, Chapter 13 covered 220,720 homeowners, 8 percent more than a year earlier and the most ever.

Maj. Shirley Challis, who conducts sales of foreclosed property for the Marion County Sheriff's Department here, said she listed fewer than 1,000 a year five and six years ago. By Thursday, she had listed 5,532 for this year alone. "That's pretty massive," Major Challis said.

Home Foreclosures at 30-Year High

Thomas A. Fogarty, USA TODAY

A record percentage of U.S. homeowners are facing foreclosure, and many more are falling behind on monthly house payments.

During April, May and June, 1.23% of mortgages - about 640,000 - were in the foreclosure process. That's the highest rate in its 30 years of tracking, the Mortgage Bankers Association said Monday. A year earlier, not even 1% of mortgages were in foreclosure.

Though the inclination might be to blame the economy, it's more than that, industry observers say. Other factors might be at work.

Changes in the way lending is done, for example, could help explain the trend. The past decade has brought a proliferation in mortgage products - including interest-only and low-down-payment loans. "Many of these products are being stress-tested for the first time in a recession," MBA chief economist Doug Duncan says.

The high level of foreclosures is surprising for two reasons, Duncan says: Economic conditions aren't all that dire, and previous surveys hadn't been showing a level of delinquencies that would predict record foreclosures.

John Karevoll, a DataQuick analyst who independently has tracked an uptick in foreclosures, says it might reflect greater willingness by lenders to use foreclosure to compel payment.

"I'm told they're starting to use the foreclosure process to crack the whip a little more than they once did," Karevoll says.

Housing remains strong in most markets, he says, giving the borrower or lender opportunity for a quick resale at a good price.

Other likely culprits:

The job market. Unemployment averaged 5.9% in the April-June quarter, a recent high. Homeowners out of work find it harder to make payments. Because the job market likely will remain soft, Duncan says, the proportion of borrowers under stress might stay high for six months or so.

Social policy. Government efforts to broaden home ownership have resulted in nearly 68% of Americans owning homes, a record. But the efforts also have meant lending to higher-risk borrowers.

Consumer debt. As millions have refinanced, many have rolled high-interest consumer debt into their mortgages. Doing so puts the house at risk when times get tight.

EXCLUSIVE REPORTS

Banks try to hold down foreclosures

Sharon Simonson

Every weekday on the front steps of the Santa Clara County Courthouse, banks and other lenders attempt to sell the homes that they have foreclosed on.

Two years ago, opportunistic buyers snapped up the overwhelming majority of the few properties that went to sale. Today, those outside buyers, some of the valley's most sophisticated housing-market watchers, are largely passing up the same chance despite a relative wealth of opportunity.

Beware, Santa Clara County home owners and would-be purchasers. Despite the rosy statistics continuing to emerge from local and statewide Realtors associations and the continued home buying by those interested in locking in low interest rates, there is increasing evidence that the Silicon Valley housing market is navigating treacherous conditions.

The typical buyers in this little-known courthouse marketplace say their potential profits are being squeezed by stagnant or declining home values and the increasing incidence of homes being worth nearly the same or less than the loans outstanding against them. In come cases -- about 30 percent of the time, according to the auctioneer -- banks have started the bidding at less than the full value of their loans just to unload these homes. A year ago, they did that only about one-fifth of the time.

"Values have been going down in Silicon Valley for three years, in my opinion," says Dick Goodell, who has been auctioning houses at the courthouse for the last eight years. "When you look at only sales that have closed, you don't see the sales that haven't occurred because the owners can't sell because they owe more on their loan than the home is worth, and appraisals are by definition behind the times.

"These guys [buying the foreclosed properties] walk around with hundreds of thousands of dollars in cashier's checks in their pockets, and they are paying cash for these houses, sometimes sight unseen. They know what they're doing, and they know real value."

Right now, he says, they're saying that values are falling.

Meanwhile, there is an entire universe of troubled housing (and other) loans that is not available to public view. That universe is not reflected in foreclosure sales or other public records. Instead, it is hidden in private conversations behind closed doors. Those conversations, however, clearly hold the seeds of future housing woes.

According to many, many sources, banks and other loan servicers are working furiously behind the scenes with troubled borrowers to try to rejigger loans and payment requirements in an effort to avoid foreclosure. Lenders hate to foreclose on property -- it is expensive and a management headache.

"The biggest growth department in all of the mortgage-lending servicing departments over the last year has been the loss-mitigation department. That is the department dedicated to finding solutions to defaulted loans other than foreclosure," says Bruce Juenger, president of the Association of Real Estate Owned Managers in Los Angeles.

"There is an increasing number of loans in the 90-day-plus delinquency range and a lot of that is because of the weakened economy and job loss -- you certainly have that in Silicon Valley -- and there is also a problem with consumer's debt loads in general."

Public record, expressed through banks' public filing of loan default notices or the public posting of anticipated property sales, never reflects these private discussions. That means that the relatively low foreclosure rates reported in the press are only the tip of the iceberg. How much iceberg sits out of sight is anyone's guess.

"There's no way to quantify what's in the pipeline that hasn't gone full cycle [to foreclosure]," says John Connolly of John Connolly Partners of Larkspur. Mr. Connolly operates throughout the western United States, acting as a receiver in state courts or bankruptcy trustee in federal court, stepping in at the behest of judges to run businesses and manage real estate when troubles emerge. The bulk of his attention of late has been dedicated to Northern California.

Through Oct. 2 of this year, lenders filed 2,466 notices of default in Santa Clara County. A notice of default is the first step in the foreclosure process. That's up from about 1,750 last year at the same time, but represents only about 5 percent of the county's for-sale housing stock.

"I think lenders are in real denial about how many bad loans they have on their books, and they have taken a long time to take an aggressive posture," Mr. Connolly says.

They have bet on the hope that businesses will be able to stabilize themselves and then refinance their debt elsewhere. But the forbearance can't last forever, he adds. Regulators eventually will force lenders to deal with their problem loans through foreclosure and write-downs of loan values.

Calls to public relations professionals for Washington Mutual, Bank of America and Citibank -- all active home-mortgage lenders -- did not yield comment on these issues. An executive with Wells Fargo Home Mortgage declined to specify how actively the bank is renegotiating troubled loans.

According to The Blue Sheet, a daily publication that enumerates properties slated for foreclosure and sale at the Santa Clara County Courthouse, lenders have foreclosed on 307 homes countywide through mid-September. A year ago at the same time, lenders had foreclosed on 180 homes. In 2001, they'd foreclosed on only 52 homes.

In addition, during 2001, banks were overwhelmingly able to sell the foreclosed homes at auction to opportunistic buyers, taking back only 26 homes the entire year.

The market turned in 2002, when lenders were forced to take back 151 homes, or about half of the homes they foreclosed on during the year.

So far this year, lenders in Santa Clara County have taken back nearly 200 homes, or about two-thirds of the homes they foreclosed on.

According to data from Foreclosures.com, of the 12 counties in the Bay Area that the company tracks, Santa Clara County is the only one where banks are taking back more properties than they did last year.

But, given that the Bay Area overall has lost 10 percent of its jobs base, or 334,500 jobs, since March 2001, while Santa Clara County has lost 17.5 percent, or 183,500 jobs, that probably isn't surprising.

SHARON SIMONSON covers real estate for the Business Journal.

Home foreclosures double since ’94

Study links part of trend to predatory lending increase

By Laura A. Bischoff

Columbus Bureau

COLUMBUS | The number of home foreclosure filings more than doubled statewide between 1994 and 2001, a trend that researchers blame partly on predatory lending, according to two studies released Friday.

"We don’t think it’s a (one) year problem, but a problem over the last several years and not tied to the economy, but tied to a rise in subprime lending," said Bill Faith, executive director of Coalition on Homelessness and Housing in Ohio.

In 2001, more than 43,000 foreclosures were filed statewide, and more than 24,000 Ohio families lost their homes to sheriff’s sales. Those sheriff’s sales of foreclosed properties statewide increased by 200 percent since the mid-1990s. In 1995, one in 520 Ohio households lost its home to a sheriff’s sale, but in 2001 it was one out of every 181 households, according to a study by Policy Matters Ohio, a Cleveland-based think tank.

In Montgomery County, foreclosure filings increased 207 percent between 1994 and 2001 when they reached 3,152 and sheriff’s sales climbed 220 percent between 1996 and 2001, 2,126 homes were sold at sheriff’s auction.

Foreclosure filings are reported by county clerk of courts to the Ohio Supreme Court. Actual foreclosures, or sheriff’s sales, are carried out by county sheriffs.

Foreclosure filings and sheriff’s sales increased dramatically during the economic expansion of the 1990s as well as during the recent recession, the study showed. The foreclosures are occurring in urban, suburban and rural areas, researchers said.

While homeownership increased from 64 percent to 67 percent since the mid-1990s, the trend does not account for the dramatic increase in foreclosures, Faith said.

Paul Bellamy, executive director of the Lorain County Reinvestment Coalition, concluded that subprime lending is the leading factor in Ohio’s growing foreclosure problem. Bellamy studied foreclosures in Lorain, Summit and Montgomery counties and found subprime loans are three times as likely as standard loans to result in default.

Subprime lenders give loans to people with bad credit and charge a higher interest rate. Predatory lenders are a subset of subprime lenders. Predatory loans often come with big fees, high interest rates, prepayment penalties and balloon payments.

Nationally, subprime lending increased 900 percent between 1993 and 1998 and in 1999 Ohio had the third-highest volume of subprime refinanced loans in the United States, Policy Matters Ohio said.

This year, Ohio adopted a law that strips local governments of the power to outlaw predatory lending practices. The law came after Dayton passed such an ordinance and other cities began to consider them.

The banking industry feared it would face a patchwork of lending regulations. Consumer groups opposed the law, saying it offered little consumer protections, and cities objected because they said it would encroach on their Home Rule powers.

Policy Matters Ohio researcher Kent Smith said he hoped studies such as the two released Friday will prompt lawmakers to pass consumer protection laws against predatory lending.

"This is a problem Columbus seems to be ignoring," he said. "You have more protection in the state of Ohio when buying a toaster than you do buying a home. That is the legal truth."

Policy Matters Ohio and Lorain County Reinvestment Coalition urged lawmakers to remove a provision in state law that exempts mortgage brokers and lenders from the Consumer Sales Practices Act. Policy Matters Ohio also recommended that local governments be given the power to enact their own predatory lending regulations.

Mayors of Dayton, Columbus, Cincinnati, Akron and Toledo said Friday that predatory lending is an issue in their cities. Each of those cities has passed or has considered local ordinances to address the problem. Dayton’s ordinance is now undergoing a court challenge.

[From the Dayton Daily News: 10.05.2002]

Foreclosures leap by 25% across state

Economy, lending practices to blame, analysts say

By TOM KERTSCHER

of the Journal Sentinel staff

Last Updated: Dec. 30, 2001

Mortgage foreclosures are up by more than 25% in the Milwaukee area and statewide for 2001 in what experts say is a sign of unemployment, credit card debt and so-called predatory lending, in which low-income people take on high-interest loans and end up losing their homes.

Figures compiled late last week show that, compared with 2000, the number of mortgage foreclosure filings in Milwaukee County is up at least 31% in 2001. More surprisingly, perhaps, the increases exceeded 29% in wealthy Waukesha County and 37% in neighboring Washington County.

The numbers also are up on a statewide basis. Through November, 8,733 mortgage foreclosures had been filed, 25% more than were filed in all of 2000.

Experts disagree on how much of the increases are caused by predatory or subprime lending, but some housing advocates are focusing more on investigating that practice.

"The increase is significant, and it warrants attention," said Kim Terry, a housing and financial management educator at the University of Wisconsin Extension in Milwaukee. "I don't know that we have all the answers or even all the questions, but it's important."

Filings up 31%

In sheer numbers, the increase in mortgage foreclosure filings is highest in Milwaukee County, which has a significant low- and moderate-income population.

Going into the final few days of December, nearly 2,700 mortgage foreclosures had been filed in Milwaukee County Circuit Court, roughly 31% more than the 2,056 filed in 2000. Some foreclosures were on rental properties and some were on homes outside Milwaukee County, but most were filed on single-family homes in Milwaukee County.

A mortgage foreclosure filing typically means that a homeowner is three months behind in making payments, but it does not necessarily mean that the home will be lost. In some cases, the borrower and lender can make payment arrangements and the foreclosure action is stopped.

Milwaukee lawyer Abigail O'Dess, who represents lenders in foreclosures, noted that a foreclosure usually means a loss of money for lenders and that more of her clients are trying harder to avoid foreclosures.

Still, the dramatic increase in mortgage foreclosure filings during the past year is a cause for alarm for officials such as Milwaukee County Treasurer Dorothy Dean, who believes they are a sign of so-called predatory lending, in which firms persuade lower-income people with credit problems to take on high-interest loans that they cannot afford.

Practices criticized

Foreclosures caused by the recent downturn in the economy shouldn't start for nine to 18 months, she said.

"We shouldn't be seeing that many foreclosures. There's got to be something going on with predatory lending," Dean said.

Some lenders not only coax people into making loans they cannot afford but also will lend them more money than their homes are worth, which increases the risk of foreclosure, Dean said. Low-income people and the elderly are particularly at risk, she said.

There are indications that more "subprime" lending is being done in the Milwaukee area, but there is debate about whether it is predatory and whether it is a major cause of the increase in foreclosures.

Subprime lending involves making loans above the prime interest rate - sometimes much higher - to people who typically have credit problems. Lenders contend that there is a need for such programs because many people don't qualify for loans at the best rates.

In 1995, only 1.52% of home purchase loans in Milwaukee, Ozaukee, Waukesha and Washington counties were made by firms that do more than half of their loans on a subprime basis, according to Fairness in Rural Lending, a non-profit advocacy agency based in Sparta. That figure rose to 8.15% in 2000.

Mortgages affected

A similar trend in those counties occurred in mortgage refinancing, according to the group. In 1995, 9.64% of refinance loans were made by lenders that specialize in subprime loans, but by 2000 the figure was 21.9%.

Marvin Kamp, co-director of Fairness in Rural Lending, said one reason that foreclosure filings had increased was that many people racked up credit card debt, refinanced their home mortgages in hopes of paying them off and ultimately were left with little or no equity in their homes. If at that point people have other financial problems, foreclosure is nearly inevitable, he said.

The problem is severe enough that in January, the Legal Aid Society of Milwaukee began a program to provide legal representation to low-income people who get in trouble with subprime loans, said Legal Aid attorney Catherine Doyle.

The faltering economy certainly explains much of the increase in foreclosures, Doyle said.

Some are misled

But she said more foreclosures also are being filed because some people are misled into consolidating their debts by refinancing their mortgages at rates as high as 10% to 14% or more.

"People just struggled for a year or two to keep paying on their mortgages, and now they've just given up," Doyle said.

Other lending and foreclosure experts, however, are not convinced that the increase in foreclosures is due primarily to subprime or predatory lending. They cited traditional factors such as unemployment, other personal problems or too much debt.

Indeed, mortgage foreclosures were filed earlier this year against Green Bay Packers players Gilbert Brown and Cletidus Hunt, according to Brown County Circuit Court records, though both were able to keep their homes by making payment arrangements. Earlier this month, a foreclosure was filed on the home of Milwaukee County Supervisor Elizabeth Coggs-Jones.

Milwaukee lawyer Jay Pitner, who handles a large number of the foreclosure filings in Milwaukee County, said he believes the recession is the main reason for the increase in filings. More people are out of work, and many of them had accumulated substantial credit card debt, he said.

"It seems like a lot of people were just kind of overextended during the go-go days of the mid-'90s," Pitner said. "And now things are contracting and jobs are no longer there, and two-income families are left with one source of income."

Chris Callen, senior vice president of lending at Mutual Savings Bank in Milwaukee, said that foreclosures were not up at his bank, but that the most common reasons for foreclosure were unemployment, divorce and debt.

As for so-called predatory lending, Callen said it hadn't been clearly defined and it was difficult to blame a lender rather than a borrower for taking on debt.

"I don't know that anybody ever forced anybody to borrow any money," Callen said.

Scott Williams and Don Behm, both of the Journal Sentinel staff, contributed to this report.

Appeared in the Milwaukee Journal Sentinel on Dec. 31, 2001.

Filings reach 12-year high in 2003

By WAYNE HEILMAN THE GAZETTE

Mortgage foreclosures surged to a 12-year high in El Paso County last year as more borrowers fell victim to job losses and higher debts.

Lenders sought foreclosure of 1,954 mortgages in the county during 2003, up 21.5 percent from a year earlier and the highest annual total since 2,000 mortgage foreclosures were filed locally in 1991, the El Paso County Public Trustee’s Office reported Monday.

The tide of troubled borrowers is showing no sign of receding.

The 252 foreclosures filed in December was the highest monthly total in more than 14 years.

Foreclosure filings have been increasing every year since 1996 but have doubled since 1999.

Holly Williams, who runs the trustee’s office, said December’s total was unusually high because auditors require that she process all foreclosures received in 2003 by year’s end, even though state law gives trustees 10 days to process such filings.

Williams attributed the surge in foreclosure filings to a troubled local economy and predicted filings will not decline for at least another year.

“Foreclosures are a lagging indicator. It takes a while after someone loses their job to run out of savings and stop making mortgage payments,” Williams said. “I expect we will have another big year this year, even if the economy starts to improve.”

More than 9,000 jobs have been eliminated locally during the past three years, many of them high-paying positions in the technology industry.

That left many homeowners, deeply in debt, unable to continue making mortgage payments.

“This economy has been pretty tough on borrowers, especially those who have no margin for error when they get into (financial) trouble,” said Wayne Bland, president of Colorado Springs-based Intermountain Mortgage Co. and first officer of the Southern Colorado chapter of the Colorado Mortgage Lenders Association.

Among the most vulnerable to losing their homes are first-time home buyers, who have little if any equity in their homes, said Jay Garten, president of Colorado Springs-based Peoples Mortgage Corp., one of the county’s largest mortgage lenders.

“The federal government has gotten more aggressive about getting people into homes, often with minimal down payments,” Garten said. “That also means there isn’t enough money when the home is sold to pay off the loan once real estate commissions are paid.”

A Gazette analysis of the 252 foreclosures filed in December 2003 backs Garten’s theory.

The average amount still owed at the time of the foreclosure filing exceeded the average amount borrowed by $3,044, likely because of late fees and penalties.

The analysis found that the average interest rate on the loans on which foreclosure began last month was 8.15 percent.

Those statistics indicate borrowers had less than perfect credit because they were paying higher than prevailing rates at that time, Garten said.

Borrowers with three to four delinquencies of a month or more generally must pay higher mortgage rates, he said.

Borrowers who are in financial trouble don’t have many options — such as reducing their monthly payment by refinancing their mortgage with a new loan at a lower rate — and can only abandon the home and eventually file for bankruptcy, Garten said.

The average time between when the loan was made and when the foreclosure began was 37 months, indicating many of the properties were bought in fall 2000, when local tech jobs were booming.

The foreclosures weren’t concentrated in any one neighborhood, although the most — 24 — were against homes in the 80906 ZIP code in southwest Colorado Springs.

ZIP codes in Security-Widefield and east central Colorado Springs ranked second with 21 filings each.

Gazette Managing Editor Jeff Thomas contributed to this report.

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