The Foreclosure Report

Equity A Goal, Not A Guarantee

The Columbus Dispatch has this report on the Dominion Homes matter. "After months of blaming the economy and home buyers for high mortgage default rates, Dominion Homes is now pointing the finger at itself. 'We made mistakes with our customers,'Senior VP Thomas L. Hart told The Dispatch. 'We have some major things to fix, but they are fixable.'"

"The company crafted a plan to rebuild its reputation, which was hurt by depreciating house values and foreclosures in many of its subdivisions, investigations of its business practices and three class-action lawsuits."

"Some changes will be big and bold: replacing its in-house mortgage company with a new venture led by Wells Fargo Home Mortgage. Others will be less visible but equally dramatic: changing the way it pays its sales representatives and rewarding them when customers succeed at homeownership."

"Many Dominion home buyers have said they were coaxed into houses they couldn’t afford. The sales agents earned paychecks based on sales volume. The sell-at-all-costs culture made licensed real-estate agent Amy Smith uncomfortable when she joined Dominion in Louisville, Ky., in 2004. 'We’d sell houses to anyone who had a job, even if they worked at McDonald’s,' she said. 'We got a lot of people into houses they can’t afford.' Smith quit after six months."

"The publicly traded company came under fire after a Dispatch investigation in September detailed Dominion’s lending practices and high default rates. Dominion’s stock price dropped nearly 40 percent between September and November, and it has not recovered. Visits to model homes fell 25 percent."

"From now on, Dominion will sell one thing: houses. Sales representatives won’t pull credit reports. They won’t tell customers how much house they can afford. They won’t pitch the benefits of housing as an investment."

"Hart suspects that some Dominion customers who have fallen on hard times have overextended themselves with second mortgages to build decks, buy lawn mowers and purchase other housing extras. In Dominion’s Galloway Ridge neighborhood on the Far West Side, 68 houses have fallen into foreclosure since 2002. Less than a third of the homeowners had a second mortgage. The median amount those 21 borrowed was $14,500."

"Too many customers bought with an eye on building equity and moving to larger houses within a few years. But residents in more than two dozen Dominion subdivisions in central Ohio say they can’t sell their houses for what they paid and that their property values, as set by the Franklin County auditor’s office, declined."

"Dominion’s William G. Cornel wants customers to understand that homeownership carries risk. 'We are not selling investments,' Cornely said. 'We are sensitive to the appreciation issue,' Cornely said. 'Our interests are typically aligned with the homeowners’. We like to see appreciating values because we can sell houses for more money.'Equity is a goal, he said, not a guarantee. 'If you want to be a real-estate investor, don’t buy a new home.'"

posted by Ben Jones @ 9:38 AM