'Paying The Piper' In Delaware
The
News Journal in Delaware has this report on foreclosures. "A new study that found growing financial pressures are putting more people at risk of losing their homes. 'We know interest rates are going up and that, in turn, increases costs for people with adjustable-rate mortgages, which can contribute to foreclosures,' said Christina Hardin-Dirksen, for the Delaware Housing Authority. 'We would anticipate we'll see the foreclosure rate in Delaware rise.'"
"The average rate on a mortgage that adjusts annually has shot up to 6.09 percent compared with 4.09 percent in May 2004, before the Fed began its series of rate hikes. 'People better pay attention to what they're doing in Washington,' said state Rep. Helene M. Keeley, D-Wilmington South, a member of the state's Foreclosure Study Advisory Committee. 'There are people with [adjustable-rate] mortgages who are going to be paying the piper. It's going to be a wake-up call.'"
"A study, which relied on data from the state Judicial Information Center, found that foreclosure filings were up 51.6 percent in Delaware during the past five years."
"Edmound Yousefkhanian, a Bear homeowner, said homeowners taking out adjustable-rate mortgages with attractive initial interest rates could end up in foreclosure when those rates start to climb. Under certain mortgages, borrowers are initially paying only the interest, making for low payments at first, but those payments spike upward after a few years when the homeowner must repay both principal and interest. 'These mortgages can be a trap,' Yousefkhanian said."
Jacksonville 'Drowning In Foreclosures'
A
foreclosure report from Jacksonville, Florida. "The housing market may be cooling nationally, but inside the Duval County Courthouse the foreclosure market is booming. The foreclosed property auctions inside the Courthouse attract crowds of buyers. Tuesday’s auction saw eight properties sell in less than an hour."
"The auctions typically move from 10-30 properties a day, according to the Clerk of the Circuit and County Court’s office, which runs the proceedings. Staff at the Clerk’s office said the number of foreclosed properties has been on the rise this year. Several buyers at the auction attributed the increase to the popularity of Adjustable Rate Mortgages."
"As interest rates climb, those mortgages have become unaffordable for many middle- and low-income homeowners, said April Charney, a consumer attorney for Jacksonville Area Legal Aid. Charney, who specializes in foreclosure defense, keeps her clients out of the auctions by working ahead of time to settle their debts. But the auctions are becoming a frequent finish for too many Duval County homeowners, she said."
"'Particularly in poor neighborhoods, we’re drowning in foreclosures,' she said."
"The crowds make it harder to walk away with a bargain, said John Kern, an entrepreneur who bid on his first foreclosed property four years ago. 'I used to come out here and there’d be two or three people out here,' said Kern. 'Now you’ve got all these people just bidding up and bidding up.'"
"Many of those people are lured to the auctions by tales of the quick flip and easy money. 'A lot of people think they’re going to make a lot money,' said Mark Kessler, an attorney bidding on properties for his clients. “Some call them speculators, some people have worse names for them.'"
"The properties, even at half the market value, aren’t always sure things. Herb Rinderer, a title examiner who also invests in the properties, said novice bidders sometimes receive an unpleasant surprise with their winning bid. 'If you don’t do title research, you don’t know what you might be getting,' he said. 'You could be buying a second mortgage on that property. I did a search for one client and the property had a $77,000 IRS lien attached.'"
"Charney wishes she could get all that manpower involved before the properties end up on foreclosure rolls. Ironically, she thinks many of the properties could be had early at a discount. The foreclosure price often includes fees from lawyers and lenders."
"Kern, who buys mostly in poor neighborhoods, said he’s often welcomed into the community. 'When I get in there, the grass is usually two feet tall, the house is a mess,' said Kern. 'We put money into those houses and into those neighborhoods. We get the house in shape and move a family in there.'"
Subprime Defaults Jump In Maine
Maine Today
reports on the states' foreclosure situation. "The state is ratcheting up pressure on so-called 'predatory' mortgage lenders. The effort comes on the heels of a report that says 21 percent of the 'subprime' mortgages that originated in Maine in 1999 have entered foreclosure, the highest rate in New England."
"The market is dominated by nonbank lenders and mortgage brokers, many of whom lend responsibly, the report said. In the first quarter of 2005, subprime loans in Maine accounted for 14.7 percent of the total mortgage market and 60.4 percent of all foreclosures."
"William N. Lund, director of the Office of Consumer Regulation, said more people have taken steps to refinance because property values have gone up. Lenders have been busy helping them tap into the increased equity in their homes. 'Why has it become a problem? Because of all the business out there, mortgage lenders and mortgage brokers grew very big very quickly and people entered the industry without having a whole lot of background in lending,' he said."
"'(Subprime lenders) might be willing to take the risk, but it may not always be in the best interest of the borrower," said Mark Walker, general councilor for Maine Bankers Association. 'They may find that they can't make the payments as rates go up or if something bad happens and that leads to an increase in foreclosures.'"
"Anthony Armstrong, a mortgage broker in Portland, said people are being bombarded by telemarketers and mail solicitations. 'The problem right now is that people are being pressured into accepting deals that are probably not the best deal for them,' Armstrong said. '"And what's making it worse is a lot of subprime loans being made with distressed credit are adjustable-rate mortgages that usually adjust in two or three years. Now the interest rates have gone up and the indexes that determine the new adjusted rate are much higher.'"
"Hanna Thomas, spokeswoman for CEI, said Maine is especially vulnerable to predatory lending practices because it has a high home ownership rate and an aging population at the same time its economy is declining and housing prices are escalating. 'When people are economically distressed, they start taking out equity from their homes to refinance and consolidate debt,' Thomas said."
'A Silver Lining At The End Of The Tunnel'
Inman News has
this report from Realtytrac. "The number of U.S. properties entering the foreclosure process gained significantly in May from a year ago, according to an industry report released today. A total of 92,746 properties nationwide entered some stage of foreclosure during the month, up 1.7 percent from April and 28 percent from May 2005."
"Colorado posted the nation's highest foreclosure rate for the third month in a row thanks to increasing foreclosure activity in May. The state reported 4,198 properties entering some stage of foreclosure, a 13 percent increase from the previous month and a 41 percent year-over-year increase from May 2005."
"Georgia's foreclosure rate, one new foreclosure filing for every 537 households, moved up to second highest in the nation in May after ranking fifth highest the previous month. With 5,769 properties entering some stage of foreclosure, the state's foreclosure activity increased 12 percent from the previous month and almost doubled from May 2005."
"Texas reported 14,506 properties entering some stage of foreclosure in May, the most of any state for the sixth month in a row. After three straight months of decreases, Florida foreclosure activity increased more than 6 percent in May, with 8,898 properties entering some stage of foreclosure."
"California reported 8,736 properties entering some stage of foreclosure in May, a 1 percent decrease from the previous month but more than twice the number reported in May 2005."
And from the
Dallas News. "Emotions on the housing bubble have never run so high. The data on rising inventories and stagnating prices speaks for itself. Any lingering doubts were dashed with last week's news: Some $1.3 trillion in adjustable-rate mortgages will reset within the next 18 months; building starts popped, sealing sellers' fate; and try battling with 4 million other sellers to attract buyers' attention."
"But, there is a silver lining at the end of the tunnel: No matter how bad things get in the aftermath of the housing-induced slowdown to come, certain industries will flourish."
"Cottage industries all over the country will benefit from the inevitable rise in foreclosures. Attorneys, real estate agents, property managers and appraisers who specialize in this area will regain their footing after years of slowing business."
"As for investors, the rise of distressed debt funds ensures there will be a way to invest in companies that lose more than their fair share of valuation. Many subprime lenders will emerge battered from the storm but with steady, established franchises. 'There are banks that are overexposed to adjustable-rate mortgage risk,' Mr. Halpern said. 'But it's the shareholders, not the depositors, who will have the problem. That creates a silver lining for those who invest in distressed debt.'"
"If you think these suggestions sound too esoteric now, wait a bit. The availability is sure to present itself soon enough."
A 'Serious Shakeout' In Massachusetts
Some
foreclosure news on Massachusetts. "A publisher of foreclosure property information reported today that foreclosure activity in Massachusetts was reaching an epidemic level and clogging the court system. 'Our Massachusetts research team spent four hours on June 8 with clerks and judges in the District, Superior, and Land Courts and learned that the courts have a 30-45 delay in even issuing docket numbers for foreclosures across the state,' said president Alexis McGee."
"She went on to say that her information indicated that foreclosure filings for Massachusetts in the month of May were at the highest level for a single month since a similar financial crisis in the mid 1980's."
"'It's clear that Massachusetts housing markets are going through a serious shakeout,' said Ms. McGee. 'Unlike the northern New England states of Vermont, New Hampshire and Maine, Massachusetts, and in particular, the Boston metro area, experienced a tremendous run-up in prices over the last few years. Now the Boston housing market has gone completely flat, and interest rates are rising. Homeowners are being put in a squeeze and will have greater difficulty selling their way out of trouble through conventional channels.'"
A'Rash Of Foreclosures' In South Bend
The
Chicago Tribune reports on foreclsoures in Indiana. "The symbol of Notre Dame University, described by the school as "the world's most recognized campus landmark," stands watch over an area where real estate prices are crumbling at nearly the fastest rate in the country. The 10.2 percent year-over-year drop in first-quarter home prices, to a median of $81,800, provided something of a shock recently when it was reported by the NAR."
"But South Bend realty agents and sellers say the problem isn't simply that house prices are tumbling. They say the city has been victimized by a rash of home foreclosures. 'We have been hit very hard by foreclosures. But if you exclude that factor, house prices have been very steady, rising by 2 percent or 3 percent a year,' said Marsha Lambright, an agent in Mishawaka, which adjoins South Bend."
"Some homeowners take out two loans on a house, she said, and end up owing 130 percent of what it is worth, before lending institutions move in and they face eviction. Signs are seen on some South Bend houses that say 'public auction' or 'sale forced by lender.'"
"Because of the rash of foreclosures, Lambright said, 'investors are a big category here. They buy the houses in a sheriff's sale and fix them up for resale.'"
"Looking through the local listings, there are plenty of eye-popping deals. For instance: Roomy 2-bedroom ranch house, over 1,300 square feet. Nice-size family room, laundry area, garage. $38,000. Drastically reduced: Three-bedroom house with two full baths, 5 minutes from Notre Dame campus. Taxes $445 a year. Will give $1,000 toward new flooring. $99,999."
"While such offers may have a ring of desperation, most sellers remain confident, even if they sense that they might not get their asking price. Kenneth Parmelee is offering his ranch house, about two miles north of the Notre Dame campus, for $147,000. 'We're not worried about selling, because we aren't in any hurry,' said Parmelee. 'We will hold an open house and, no matter what, we will still make money when we sell,' he said."
"The problem of home loans going into default has caused Indiana to be dubbed the foreclosure capital of the country, a title it recently lost to Georgia. However, as industrial jobs have vanished, cities such as South Bend and Elkhart, which is about 25 miles away, have watched residents lose income."
"Many are unable to keep up with monthly house payments, especially as they face a need to refinance adjustable-rate mortgages. 'ARMs are a ticking time bomb," said Brad Geisen, of property tracker Foreclosure.com. 'Through 2006 and 2007, I'm pretty sure we'll see a high volume of foreclosures.'"
"'The availability of easy credit made it easy for them to buy houses that proved to be more than they could afford,' he said."
"'We're clearly seeing a buyer's market emerge, but the question that remains is how far will it go?' Geisen said, adding that all the foreclosures are creating 'a lot of opportunities for investors.'"
"One problem for the South Bend area is that it takes upwards of two hours to get there from the Loop. That means it misses out on the huge second-home market that lies just to the north and west, along Lake Michigan in Indiana and southwest Michigan. Such hot spots as New Buffalo, Mich., command top dollar from Chicago buyers."
"As for people from Chicago looking for bargains in South Bend, agent Anita Hildebrecht said one couple from Lake in the Hills sold their modest home for $250,000 after seeing a much larger house in South Bend, for about the same money. 'The house they bought had all the trimmings, including four bedrooms and a finished basement,' she said."
Option ARM Loans Work In 'Appreciation World'
An Idaho
television station reports on option ARM loans. ""Homes across the Treasure Valley continue to gain worth, and more and more people are jumping into the market head first. 'We live in a good market. We live in a market right now where property values are constantly increasing,' said Brett Anderson, owner of Security First Mortgage."
"Also increasing, the rise in popularity of the option adjusted-rate mortgage, also called the pay option ARM. 'I have a couple that just bought a second home, a vacation home they never could have afforded, but on this program,' said loan officer Ricky Catalano."
"But this type of mortgage is still fairly new in Boise, and officials say it would only work in about six or seven places in the entire USA, and we're one of them. 'In this kind of appreciation world it still continues to be a good loan for a lot of people. It isn't a loan for the weak or conservative because it is a very aggressive program,' said Catalano."
"In other areas of the United States, the loan is just starting to run its course and they're seeing a sharp increase in foreclosures. 'If they are presented with the chance to buy a little nicer home people get ahead of themselves as to what they really can afford,' said Tom Lay, of Neighborhood Housing Services."
Evicting Holdovers
Inman News has
another installment from the foreclosure experts. "When Herman, the owner of the property my friend and I had purchased at a foreclosure auction, suddenly woke up and claimed he hadn't heard one word about the foreclosure action against him, we'd already paid almost $200,000 in cash for the property. We weren't allowed to enter the property while Herman made his legal arguments that essentially asked for a do-over of the entire foreclosure. All we could do was pay the debt service on our investment, and fight back."
"Our problem was that we had no legal standing to dispute Herman's claims. In other words, we weren't parties to the foreclosure action, so we had no legal right to appear in court to tell the judge that our investment was at risk."
"Good thing we're lawyers. We drafted a motion to intervene, which essentially told the judge that because we'd sunk a huge amount of cash into the property at the auction, we had a legal right to protect our interests. Herman actually disagreed and filed a motion opposing our intervention."
"The judge granted our motion. Step one accomplished, but two months was lost in achieving just that goal."
O"nce we became parties, my friend and I sought to recoup our growing costs and to make it less comfortable for Herman to stretch out his legal challenge. We asked the court for rent in the amount of our debt service for each month that Herman lived in the property. It was granted."
"Step two accomplished, but another month was lost, and we still had no right to enter the property to inspect it. 'I've run into investors who've been stunned at the condition of the property,' said Jon Goodman, an attorney in Boulder, Colo. 'In Colorado, the owner and foreclosure lien holders have post-foreclosure redemption rights [which means the owner has the right for a certain amount of time to buy the property back by paying the amount due in the judgment of foreclosure], which can create a substantial gap between the time the investor puts up her money and actually takes title. It's not unheard of for owners to trash the property after they realize they're going to lose it.'"
"'Vandalizing a property can be criminal, but prosecution of the crime doesn't help put money in the foreclosure investor's pocket,' he said, 'and sure, the investor could sue the owner for the damage. But generally it's not productive against people who've lost their home to foreclosure.'"
"In the end, the judge found that Herman's claim of improper service was groundless and confirmed the sale, but it took months for the judge to reach that conclusion. Our legal problems weren't over, though. The final legal hurdle we faced is so common that it's silly not to expect it. Herman wouldn't willingly leave the property.'
"In Florida, if investors must have a sheriff forcibly remove a former owner or tenant, said Ben-Ezra, the eviction can take as long as six weeks. In New York, a stubborn owner or tenant can drag the process out for as long as a year, said Michael Resnikoff, an attorney who works with Bruce Bronster on foreclosure litigation at Dreier LLP. Usually, he said, you can get the owner or a tenant out by reaching a financial settlement that includes a date for the resident to be out."
"'A prudent investor will start the eviction right away and then try to work something out with the tenant,' said Resnikoff. If the parties agree, the stipulation of settlement between them will state that a warrant for the sheriff to forcibly evict the resident will issue immediately after the date the resident agreed to be out."
"Herman finally left just before the sheriff was scheduled to forcibly evict him. That cost us another month in delays and another several hundred dollars in sheriff's fees to arrange the forcible eviction."
"When we finally walked into the unit six months after we'd paid in full for it, we saw that Herman had left junk everywhere (about 40 garbage bags of stuff). His cats had soiled carpeting throughout the unit. And the hardwood flooring that we thought was in Herman's huge living room and hallway was actually soiled carpeting. But there was no intentional damage."
"We began the rehab, which took several months, and closed on the sale of the remodeled unit a few days after our one-year anniversary of its purchase."
"Goodman sums up exactly my advice about investing in foreclosures. 'Buying property at foreclosure auction isn't for the novice or the dabbler, but everybody has to start someplace,' he said. 'It's not easy. If it was, everyone would do it, and that would decrease the returns. It's generally for serious, sophisticated investors.'"
"'My message is do your due diligence,' Bronster said. 'You're not going to get rich quick without working your butt off. If you identify a property in an area you know, you might be able to learn anecdotally what's going on in the property and understand the value of it. If it's in another neighborhood, that's a whole other can of worms, and you might not know those things. Do the work, and you might get a diamond.'"
Foreclosure Tips From The Experts
Inman News has
some tips on foreclosure buying. "'One risk in investing in properties at a foreclosure sale is not doing an appropriate title search and knowing what that property is encumbered with,' said Marvin E. Katz, an attorney in Fort Lauderdale, Fla., which represents lenders in foreclosure proceedings. 'If you think there's a lot of equity there, it could be that the second mortgage was foreclosed, and you're taking the property subject to the first mortgage.'"
"Colorado purchasers are warned of just such a possibility because an influential Colorado resident was burned in a foreclosure sale, said Jon Goodman, an attorney in Boulder who represents both mortgage holders and foreclosure investors. Under Colorado law, he said, public notices for foreclosures must give buyers a heads up that the lien being foreclosed may not be a first mortgage."
"Even if it's the first mortgage that's being foreclosed, you'll probably end up paying other liens, including mechanics or judgment liens, Goodman said. Also, you'll always take subject to an IRS lien and past-due property taxes."
"Though you may know the amount of past-due taxes, you can still end up being surprised by the taxes, said Bruce Bronster, a lawyer in New York City, who represents institutional clients such as lenders in foreclosure sales."
"'You buy thinking the house is taxed at a certain level,' he said, 'but you really need to understand what the taxes are because you may lose some exemptions. For instance, a veteran's or a senior citizen's exemption can be lost in a foreclosure sale, and you could get hit with higher taxes.'"
"Katz said that in Florida, homeowners' association dues and fees typically fall in a foreclosure sale, but not always. 'You have to check the homeowners' association documents,' he said. Condo associations are better protected under Florida law, he said, and you may be forced to pay back the full amount of past-due assessments if you buy at foreclosure sale."
"Goodman said he ran into a situation where a lender foreclosed and discovered the house on the property encroached onto the property next door. 'The neighbor was waiting, loaded for bear, for a deep pocket to go after,' he said, and when the bank foreclosed, he got just that. An unwitting investor might have just as easily been tagged with the headache of an encroaching property."
"The problem with an encroachment, Goodman said, is that you wouldn't necessarily learn of it by doing a title search. 'It would show up on a survey,' he said, 'but foreclosure investors generally don't ante up for a survey before they buy.'"
"Investors can also make huge mistakes by not reading the property's legal description or checking it against an actual address. 'In one case, a purchaser bought a dwelling unit that turned out to be a windowless basement unit with no kitchen or bathroom,' said Bronster. 'He was pretty unhappy and sued to undo the sale. He was successful because the court bent over backwards to help him out, but I think the court was wrong because it really is caveat emptor.'"
"In another case, the purchaser looked up the owner's address and drove by it. 'He saw a nice property in a nice part of town and bought it,' said Bronster. When the investor went to look at the property again after the sale, he realized the property he bought was at a different address than the owner's address he'd looked up. 'He'd bought a run-down single-family house on a different street that was a disaster,' Bronster said."
"The lesson is to read the legal description. 'Drive by the property to get a visual,' said Bronster. 'Look at the street address and make sure it matches the legal description.'"
A Trickle Is Becoming A Drop
A trio of
foreclosure reports. "Massachusetts homeowners are falling into mortgage foreclosure at the fastest clip in 10 years, new figures show. The Mortgage Bankers Association reported yesterday that during the first quarter, roughly one Bay State homeowner in 294 entered foreclosure, the process banks use to seize properties for loan nonpayment."
"That’s double the foreclosure rate recorded less than three years ago, as well as the state’s worst showing since first-quarter 1996."
"MBA Senior Economist Mike Fratantoni attributed the problem to the state’s shrinking population, weak job growth and slowing housing market, which make properties hard to unload fast. Fratantori said Massachusetts appears to only face 'a mild slowing of the housing market.' He said the current slowdown doesn’t look like 'a repeat of the early 1990s. This is just a slowing in the housing market from the rapid growth of the past couple of years.'"
The
Miami Herald. "More Floridians are falling behind on their home loans, as interest rates on adjustable mortgages rise. A faint uptick appears to be taking place, said Stuart Gitlitz, a South Florida attorney who specializes in foreclosures. 'What was a trickle is now becoming a drop,' said Gitlitz."
"One potential problem looming: The soaring popularity of adjustable rate mortgages in recent years. Other experts say the issue certainly doesn't appear to be a looming threat. 'It takes at least a year' for economic problems to manifest into foreclosure actions, said Vivian Sierra, for Miami's U.S. Century Bank. And while there is unceasing speculation about the South Florida real estate market, she doesn't see any major problems with the residential market. 'I don't see a bubble bursting.'"
"Ken Thomas, a Miami banking analyst, concurred. 'The bubble may be seeping,' Thomas said of real estate. 'But my gut feeling is that there's no evidence of major problems.'"
From a
press release. "Notice of Trust Sale filings in Maricopa County, Arizona increased 19% in May and pre-foreclosure inventory crept up after 16 months of decline according to Tim Rocho, a foreclosure data provider. NOTS (notice of trust sales that starts the official foreclosure process) filings increased from 624 in April to 745 in May, the number of Auction (foreclosed) properties increased from a historic low of 35 to 55 and cancellations of pre-foreclosures decreased from 701 to 690, turning the tide of consistent declines to increase outstanding pre-foreclosures from 2243 to 2272."
"'I certainly wouldn’t call this a steep reversal in the market but it does signal that the number of foreclosures are about to increase. The weather and lifestyle continues to attract thousands of new residents every month, but with average house prices above $300,000, MLS inventory around 40,000 and interest rates topping 6.5%, the market is beginning to level off and defaults will follow,' Tim says."
From
California. "With many interest-only and other 'non-traditional' mortgages set to adjust upward, some local real estate and lending professionals think the end of the year might bring some unpleasant news. In late 2006 or early 2007, many homeowners will see introductory fixed rates expire on interest-only and other types of adjustable loans they first took out over the past five years."
"The real estate market has been one of the strongest engines driving the vibrant Coachella Valley economy, though it has been softening in recent months. 'I'm not necessarily seeing a panic, but I am seeing people come in here wondering how they're going to handle those higher payments,' said (mortage broker) Patricia Chill in Palm Desert."
"'People are nervous, because some of them are in programs they shouldn't have gone into,' she added. 'Some of them are going to be paying taxes and insurance that they didn't figure into their original payments.'"
"In the Coachella Valley, in the first quarter of 2006, there were 305 notices of default issued, according to DataQuick. That was up 41 percent from the first quarter of 2005."
ARM Resets Squeeze More Homeowners
The
Associated Press has this report on lending and foreclosures. "As more hybrid adjustable rate mortgages adjust upward and housing prices dip, many Americans can't refinance out of this squeeze. They are finding themselves trapped in too-high monthly payments, and some face foreclosures."
"In the last several years, millions of Americans took equity out of their houses and refinanced when interest rates were at historical lows and housing prices were at record highs. Many of them chose to refinance into hybrid ARMs that lenders were aggressively pushing. ARMs, which featured a low introductory interest rate that resets upward after a set period of time, were easier to qualify for than traditional fixed-rate loans."
"This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA. Monthly payments will leap too, many beyond what homeowners can afford."
"In 2002, Christopher Jones refinanced into a hybrid ARM with plans to refinance again when the rate started to readjust. At the time, his downtown Atlanta house appraised for $108,000. Now, his monthly payments have shot up, but Jones can't sell his house for more than $84,000 and he can't get an appraisal for more than $85,000."
"The appraisal firm told Jones that the value of houses in his neighborhood have fallen victim to a cooling market. With no other options left, Jones has decided to pack it in and foreclose on the house. 'I'm just going to take the loss,' he said. 'That's all I can do.'"
"Some homebuyers, especially first-time buyers, may not have fully understood the risk of ARMs. In the rush to close on a house sale, especially in the frenzied market of the past few years, many first-time buyers often failed to get the full details of their loan from their mortgage broker. 'Sometimes buyers are very optimistic of how much mortgage they can handle, especially in a strong housing market with aggressive marketing of riskier mortgages,' said (credit counselor) Suzanne Boas."
"When Dora Angel of DeSoto, Texas bought her first home in 2003, she paid $141,000 for the brand new three-bedroom, two-bath home. At the time, her mortgage payment was $1,400 a month. DeSoto originally thought that she had a fixed-rate loan. But about five months ago, she noticed that her monthly payment kicked up to $1,900. She only made the monthly payments by sacrificing payments on her credit cards, which pulled down her credit rating."
"Now, DeSoto can't continue paying $1,900 each month, but, because of her credit ranking, she doesn't qualify for a fixed-rate mortgage."
"'I was a first-time buyer. I was blind. I didn't know what questions to ask,' she said. 'And the mortgage brokers are there telling you what you want to hear just to get you in the mortgage.'"
Unfortunately, during a runaway market, many buyers, sellers and mortgage brokers were more excited about making deals than making smart deals, and the fallout has just begun.
"'We are on the front of this ARM problem. It will roll out over the next several years,' Boas said. 'Owning a home is the American dream, but losing one is the ultimate nightmare.'"
'Plenty To Buy, Nowhere To Sell It'
The
Associated Press has this on the foreclosure business. "They gather outside the courthouse every day for the latest real estate auction. Some are professional investors; others come to ply skills gleaned at get-rich-quick seminars. All of them are trying to scoop up homes that belonged to others who died, divorced, were thrust into bankruptcy or fell too far behind on their mortgage payments and failed to sell."
"But these days, those investors are having a harder time finding good deals, as the once red-hot housing market cools amid rising mortgage interest rates. Many homes that do end up in court are saddled with more than one mortgage and have little or no equity, so the investors take a pass."
"'In the last six months or so, it has been like this,' said James Lee, who has mined trustee auctions for investment property for 15 years. When home price increases were stronger, investors could buy a property and sell it a few months later for a hefty profit. 'Now you're getting into the market where there's plenty to buy, but there's nowhere to sell it,' said Peter Winn."
"As home prices soared in recent years, many buyers had to take out more than one mortgage with low-interest, adjustable rates to close their deals. Those rates are now climbing, forcing many homeowners to drain their equity to cover larger payments then try to sell their property to stave off foreclosure."
"As the market slows, finding buyers in time to avoid foreclosure can become more difficult, said Brad Geisen. That could aid well-funded investors who buy directly from homeowners and may no longer have to compete with buyers who took advantage of cheap borrowing in recent years to drive up prices. 'There's definitely a turn,' Gelsen said."
"Other factors suggest problems ahead for the housing sector. Historically, borrowers who run into trouble paying their mortgage tend to do so within the first three to five years of the loan period. Currently, more than half of the nation's $9.2 trillion in outstanding residential mortgage and home equity loans are less than three years old, said Doug Duncan, chief economist for the Mortgage Bankers Association."
"Another potential trouble spot: About 24 percent of all home loans are adjustable, which can be risky if borrowers end up paying far more than they bargained for as the Federal Reserve hikes interest rates. 'Adjustable rate mortgages always have a slightly higher delinquency rate than fixed-rate mortgages,' Duncan said."
"An increase in the number of homeowners in trouble could mean big business for companies like Dallas-based HomeVestors of America, which proclaims, 'We Buy Ugly Houses.' Less than 5 percent of deals now made by HomeVestors franchisees involve foreclosed homes. But CEO John Hayes expects that to increase."
"'I am certain that as we've seen in the last few months more incidences of pre-foreclosure activities, we're going to see an increase a year from now,' Hayes said."
Dallas/Ft. Worth Defaults 'Here To Stay'
The
Dallas News has this update from the metroplex. "With mortgage rates inching up and consumer expenses soaring, most analysts weren't looking for a decline in local home foreclosures. So July's 26 percent jump in North Texas residential foreclosure postings over last July comes as no surprise to the folks who track the market."
"'I don't see any reason for it to fall off,' said George Roddy of Foreclosure Listing Service. 'The major cause is credit card debt and overborrowing on properties. This is here to stay.'"
"The Addison-based foreclosure analyst said Thursday that more than 2,700 North Texas homes are facing foreclosure at next month's auctions. That's down from the 3,200 homes in June but remains significantly above last year's total for the month."
"'July's postings would have been higher if the date of the sale wasn't on the Fourth of July,' Mr. Roddy said. Even with the holiday, home foreclosure postings were up 44 percent in Rockwall County and 43 percent in Tarrant County."
"Pending foreclosures rose 25 percent in Dallas County. Through the first seven months of 2006, more than 21,000 North Texas homes have been posted for foreclosure, an increase of 13 percent from postings in the same period of last year."
"Rising home prices and increased mortgage costs have added to the problem, Mr. Roddy said. 'As prices go up, more people trying to buy a house need these creative financing packages, and they get in over their heads,' he said."
The Houston
Real News has this update from that city. "According to a foreclosure data provider, Harris County foreclosures in Houston's most populous county in July increased by more than 500 records over June's foreclosures."
"We reported 1,570 Trustee Foreclosures in June, and as the data shows below, there are 2,091 foreclosures scheduled to go on the block in the upcoming auction."
"June was 50% greater than May's numbers. In from May to July, we have seen a near doubling of foreclosures being posted in Harris County. What is bad news for Houston homeowners, creates investment opportunities for Houston real estate investors."
"The Houston foreclosures are being auctioned on July 4th."
The link has a list of foreclosure properties that include an acre or more of land.
5% Of Colorado Springs Home Loans In Default
A
foreclosure report from Colorado. "The home foreclosure rate in Colorado Springs was the 13th highest in 100 metropolitan cities nationwide during the first quarter, according to a research service. However, the rate of foreclosure remained well down from the record highs of the 1980s, when foreclosed homes equaled about 30 percent of total homes. Today's rate equals about 5 percent."
"Colorado Springs is on pace to have more than 2,500 foreclosures this year, compared with 2,289 last year, according to the El Paso County public trustee’s office. The record was 3,476 foreclosures in 1988. Because the city had fewer houses then, the foreclosure rate was much higher, 1 for every 28 households."
"Real estate experts, economists and lenders blamed this year’s rash of foreclosures to heavy consumer debt and increasing mortgage rates. Too many foreclosures could drive down prices, even to the point that a house’s market value is less than the mortgage, said Rick Sharga,VP for RealtyTrac."
"'If they’re concentrated in an area, it will depress the whole area’s pricing,' he said. 'There’s a ripple effect. If it’s severe enough to affect the surrounding community, it can affect the banking community. The mortgages that weren’t going into foreclosure are at risk.'"
"Sharga said there is no way to know how many foreclosures it would take to depress house values. Jay Garten, president of People’s Mortgage Co., one of the city’s largest lenders, said Colorado Springs has not reached that point."
Defaults 'On The Rise' In California
A
television station in California has this to report. "The number of California homeowners having difficulty paying their mortgage is going up. New statistics show the specifics: the number of foreclosures is clearly on the rise."
"In California there are more than 2,500 homes in foreclosure. There are nearly 85,000 pre-foreclosures. Those are homeowners who are on the verge of losing their homes."
"In Sacramento there are 165 current foreclosures, more than 4,500 homes are in pre-foreclosure."
"In San Joaquin County there are 76 foreclosures and more than 2,800 pre-foreclosures."
A video report is available at the link.
Foreclosures 'Heat Up' In South Florida
A
foreclosure press release from Florida. "The number of foreclosures has been heating up over South Florida since January 2006, with Broward County, up 50 percent, leading the other key counties, according to a real estate research company."
"'Increased foreclosure activity has been a common trend in South Florida over the last year, unfortunately Broward County has been the hardest hit,' said Serdar Bankaci."
"Broward leads South Florida with the most foreclosure activity, but Palm Beach and Miami-Dade are not far behind. Palm Beach is second with 37 percent and Miami is a close third at 30 percent. The worst part is, the double-digit increases that started back in May of 2005 do not show any signs of cooling off anytime soon."
"'Investors are shying away from the Eastern coast and focusing on the Gulf coast which has seen significant decreases in 2006,' said Bankaci."
When Defaults Pull A Neighborhood Down
The
Cincinnati Enquirer has this on one area beset with defaults. "Avondale had the biggest drop in average price, down 37.4 percent from 2001 to 2005 and nearly 20 percent from 2004 to 2005, to $100,478 last year. The price decline came as sales rose nearly 57 percent in Avondale in that period."
"The high number of foreclosures in Avondale could be partially to blame for pulling down the average price so dramatically."
"(Broker) Tom Steele said while Avondale and North Avondale, which the MLS counts as one area, includes many homes that sell in the range of $200,000 to more than $600,000, more homes priced below $60,000 that typically are bank-owned or foreclosed-on represent a larger portion of the area's sales."
"In 2005, for example, he said 39 out of 116 homes sold in Avondale and North Avondale, 34 percent, were bank-owned homes averaging $40,000. When banks resell foreclosed homes, they often get only 50 percent to 70 percent of what comparable houses would bring."
"'As with other areas, once those foreclosures have been rehabilitated and resold, the Avondale market will recover,' Steele said."
"Crime also is a factor in Avondale's steep decline, according to Menelaos Triantafillou, associate professor of planning at the University of Cincinnati. Last year, Avondale had 13,358 calls for police service, more than double nearby neighborhoods such as Bond Hill and Roselawn, according to Cincinnati police records. Avondale also had more homicides, robberies and aggravated assaults and burglaries than its nine immediate neighborhoods."
"Crime deters people from moving to Avondale or from investing in their houses there, and the lack of demand drives down home prices, said Triantafillou."
"The big increase in the number of houses sold even as the average price dropped may indicate that people are selling their homes and moving away because they fear home prices will continue to drop, Triantafillou said. Homeowners also could be selling those homes to investors mainly for rental purposes, further pushing down prices."
"'A 37 percent drop in home values is extremely high for one community, and it's an alarming trend,' Triantafillou said."
Study Questions Lending Industry Claims
Kenneth Harney
writes at the Washington Post. "They are the new breed of mortgages, and home buyers in high-cost real estate markets can't get enough of them: interest-only and payment-option plans that cut monthly payments sharply in the early years of a loan."
"Lenders have marketed both types of mortgages aggressively, often to people who need to stretch their incomes to afford homes, but have said often that their borrowers have solid credit histories and excellent credit scores and that they fully understand the risks once payments reset in a few years."
"A new statistical study challenges some of the mortgage industry's claims about borrowers' sterling credit qualities. The Consumer Federation of America examined the case files of more than 100,000 mortgages closed from January to October 2005. Among the findings: Home buyers who take out payment-option loans tend to have below-average credit scores. Nearly 54 percent of payment-option users in the sample had FICO scores below 700."
"Most payment-option mortgages permit borrowers to choose what they want to pay per month for a preset period. Some mortgage securities industry experts estimate that up to 70 percent of payment-option borrowers go with the minimum payment. That, in turn, causes them to increase their principal debt through a process known as negative amortization."
"Borrowers often are allowed to increase their original loan balance by 10 percent to 25 percent before they must begin paying down the principal with significantly higher monthly payments."
"The Consumer Federation study also examined the household incomes of interest-only and payment-option borrowers. More than three in five payment-option plan borrowers and 47 percent of interest-only borrowers had annual household earnings of at least $72,000, seemingly a good sign."
"But Patrick Woodall, co-author of the study, noted that many of those households still had incomes well below the median for their metropolitan areas, which often are high-income, high-cost markets such as Washington, San Diego, Los Angeles and San Francisco."
"More troubling, he said, was the finding that many borrowers using interest-only and payment-option loans have modest incomes and could already be stretched financially. One in eight payment-option borrowers and one in six interest-only borrowers earned less than $48,000. Woodall said that 'all sorts of events could trigger problems for these people' that could lead to defaults, foreclosures and loss of houses."
"Though the jury is still out on the risks of payment-option and interest-only mortgages, the Consumer Federation's findings suggest that lenders are hardly reserving them for high-income, high-credit-score applicants. In an economic squeeze, some of the loans could prove highly toxic, a prospect almost certain to weigh heavily in the financial regulators' forthcoming new guidelines."
Rental Ban Won't Prevent Foreclosures
The
Associated Press has this update on Indiana. "Developers would have to wait three years before renting out a newly built home under a Greenwood proposal aimed at protecting unsuspecting buyers from being stuck in primarily rental communities."
"Mayor Charles Henderson said he was proposing the idea after a subdivision developer in the city reneged on his promise for it to be geared mainly toward empty-nesters. 'I want to send a message that people deserve some protection and that anybody that buys into an addition can feel comfortable it isn’t going to be turned into a rental community,' Henderson said. 'It would help protect folks that get crossed up.'"
"The City Council in the southern Indianapolis suburb heard arguments against the proposal Monday and put off action until its June 19 meeting. The proposed ordinance includes a fine of up to $250 against violators."
"'One thing that I’m concerned about is the fact that we’re still going to have foreclosures, and that means that we’re going to have more houses that are vacant for two to three years while they wait for this time period to wash out,' real estate agent Bruce Brian told the council members."
"The proposal to ban new homes from being rented out is unusual, said Joe Molinaro, of the Chicago-based National Association of Realtors, who has reviewed 300 housing laws nationwide. 'Typically, towns have powers through state laws to do zoning, but zoning always deals with uses such as residential versus commercial, or the size of lots,' he said."
"'It doesn’t deal with whether a person can own or rent a space.'"
Kansas Housing Market Needs 'Big Bulldozer'
The
Kansas City Star has this on foreclosures in that state. "The number of home foreclosures in Kansas has increased over the past year, a new report says. There were 436 mortgage foreclosures in the state in April, slightly more than double the number from April 2005. Through the first three months of 2006, lenders foreclosed on 600 homes, about one-third more than the 440 foreclosed during the same period a year ago."
"Kirk McClure, at the University of Kansas, said he thinks declining home values in western Kansas contributed to many of the foreclosures. For example, McClure said someone holding a $100,000 mortgage on a home valued at $90,000 has little incentive to keep making payments."
"'One of the best tools for our housing market in western Kansas is a big bulldozer,' he said. 'We've got too many units.'"
"McClure also said lenders offering '100 percent financed, no-money-down' loans haven't helped people with inconsistent incomes. 'If we take someone whose income is very low and it's irregular, and we get them into a home that they can't sustain two years, three years down the road, we have not done them a service,' he said. 'There's a reason a bank turns somebody down.'"
"Kirk Lowry, vice president of Farmers State Bank in Atwood, also blamed 'brain-dead finance companies' for approving loans worth more than the property. The companies, few of which regularly do business in the area, roll fees into the mortgage payment, meaning that if the owner defaults, he or she is left with almost no equity."
"'It's just as easy to say it's rent,' said Lowry."
"Still, McClure noted the figures show the rate of foreclosures in Kansas is still half the national average, meaning Kansas still has a low enough cost of living to make home ownership affordable for most people. 'Our incomes aren't great, but our ratio of house price to income is much more comfortable,' he said."
North Texans Buying With Heart, Not Head
A pair
of reports provide an update on the foreclosure situation in Texas. "If the foreclosure statistics in North Texas are any guide, we don't have to worry about a housing bubble. But that doesn't mean we're immune to hard times in real estate. More than 3,200 Metroplex homes were posted for Tuesday's foreclosure auctions. That's 13 percent more than a year ago, and more than twice as many as June 2002."
"The number of distressed properties has been climbing at double-digit rates, and North Texas added more foreclosures in April than any metropolitan area in the nation. Many experts project that local foreclosures will continue to increase. Interest rates are rising, property taxes and insurance are up sharply, and aggressive loans have put more home buyers at risk, especially as adjustable mortgages reset."
"And unlike other parts of the country, there hasn't been enough price appreciation to bail out overextended borrowers. When Texans try to refinance their loans to take out cash or get lower adjustable mortgages, many discover that they don't have much equity to tap. Some would even have to bring cash to the table to close a deal."
"'A lot of people did this creative financing three or four years ago, and it's starting to catch up with them,' says Jim Brown, a title company executive who has been tracking Tarrant County foreclosures for 35 years. 'It's going to continue to get worse, at least for the next 12 months.'"
"Rockwall County, often cited as one of the nation's fastest-growing counties, had the highest foreclosure rate; one for every 136 households. Rockwall, east of Dallas, had a 35 percent increase in April foreclosures."
"Homeowners already feel it, even if they're not among those who have financial trouble. In Dale Erwin's subdivision in west Fort Worth, he says that seven of the 220 homes are in some stage of foreclosure. And that puts a damper on home prices. His real-estate firm sells foreclosed properties, so he knows the fallout. His home was built in 2000 for $119,000, and he believes that it was worth $140,000 two years ago."
"'Today, if I could get $130,000, I'd be lucky,' Erwin says. 'The homes haven't depreciated in value, but the foreclosures are having an effect.'"
"John Baen, a real-estate professor at the University of North Texas, still believes that the local market will get worse before it gets better. He calls the current condition a perfect storm for the industry. Home inventories and foreclosures are climbing, adding to the supply. And interest rates and other living expenses are rising, while salaries are flat."
"'Right now is as good as the real-estate market is going to be this year,' Baen says. 'Come this fall, it's going to get real cold, unless we have an influx of people into D-FW.'"
And from
Wichita Falls. "Buying with the heart, not the head, is how one financial adviser explained Texas' lead among all states in the number of home foreclosures. Wichita Falls is no exception to the trend."
"Monday's Times Record News listed 52 foreclosures filed in Wichita County May 22-28. Linda Barbosa with the county clerk's office said workers there have noticed a definite increase in filings over the past year or so."
"'A lot of people are getting into more house than they can afford,' said Gail Cunningham, VP of Consumer Credit Counseling Service of Dallas. She said counselors in her company's Wichita Falls office have seen more consumers coming to them with problems paying their mortgages. She also blamed what she called 'exotic' mortgages, and she pointed out that families with adjustable rate mortgages are seeing their monthly payments increase as interest rates climb."
"Attorney Billy Elder said many of the foreclosures he handles as trustee result from owner-financing deals. He said home sellers who can't easily find buyers often turn to owner financing as a last resort. They often sell to people with troubled credit histories, he said. He said often the property comes back to haunt the seller."
"Elder said he's noticed the number of foreclosures go up over the past six months, and he blames it in part on different attitudes among buyers. 'People just don't feel the moral obligation to pay their debts like they once did,' he said."
Details Of Recent Foreclosures In Lowell, Mass.
A
report on foreclosures in Lowell, Massachusetts. "We’ve already written about the huge increase in foreclosures during the past few months, particularly during May. Now we’ve analyzed the 33 foreclosures that were commenced on property in the city of Lowell in May. One-third of them involved mortgages that were used to purchase the property. Ten of these eleven purchases also had second mortgages recorded at the same time."
"Only one of the eleven mortgages had any equity in the property. With nine of them, the first and second mortgages equaled exactly the purchase price meaning that the buyer put no money down on the purchase. All but one of the lenders involved were from outside the area with Option One leading the way with six of the 33, followed by Ameriquest with 3 and WMC Mortgage with 3. Two of these purchases occurred in 2003, four in 2004 and five in 2005."
"The other 22 foreclosures (two-thirds of the total) were refinances on properties that were owned for an average of 4. These homeowners had an average of four mortgages since they purchased the property, meaning that they had refinanced more than once. One had eight different mortgages, another had six, and five homeowners had five different mortgages."
"Sixteen of the 22 original purchases seemed to be 'arms length' transactions in which the homeowner purchased for something close to fair market value. Of these sixteen, the amount owed on the mortgage being foreclosed was on average $92,000 more than was paid for the property in the first place."
Short Sales Pick Up In Sacramento
A
Sacramento area television station has this report on short sales. "Lenders are reporting more home owners are defaulting on their mortgages. But before those defaults turn into foreclosure, some sellers are turning to short sales, if lenders agree."
"Home owner Gloria Romero bought her three-bedroom home in North Sacramento last year but has to sell it. She has listed the home for $250,000 hoping to cover her mortgage balance. Thursday she received her first offer, $219,000."
"So, Romero is turning to a short sale instead of letting the bank takeover the house. A short sale is when the lender accepts an offer that is less than the current balance. Not many lenders are accepting these negotiated transactions because it affirms the real estate market has settled from its accelerated growth that drove prices up in the first half of the decade."
"(Realtor) Scott Williams says his office has gone from no short sales in seven years to nine such transactions in the last few months. 'Back in the '90s, I became the short sale guru in Sacramento and did several hundred of them,' Williams said."
"The realtor says he's working with another home owner in Natomas who has to move and has received an offer of $399,000 for her home; about $60,000 less than what she owes on it. Like Romero, the home owner hopes the lender will agree to let the house sell for less than the mortgage balance."
"Even though a short sale will become part of these homeowners' financial history, Romero says it's better than a foreclosure. 'I don't want my credit to be really ruined.'"
"There were 37 percent moremortgage defaults statewide in the first three months of this year compared to the same period last year. In Sacramento County, there were 1,140 defaults reported in the first quarter, 2006, and less than half as many, 738, last year at the same time."
Tips On Buying Distressed Homes
Forbes has
an article on 'foreclosure hotspots.' "Turns out, plenty of homeowners are suffering despite the recent boom in house prices. According to data service that tracks delinquent mortgage holders, at the end of April there were 87,582 American homes in some phase of foreclosure. Though nationally the number is up just 2.6% from six months ago, in a few cities, foreclosure filings have jumped up by 26% and more."
"If you’re flush and hoping to get in early on what may be a bear market in real estate, there may be an opportunity for you in all this."
"On average nationally, there are 29 houses in foreclosure for every 100,000 U.S. residents. But at the top of Foreclosure.com’s list, in hard-up cities like Cleveland and Detroit, the rate is several times that. Even some higher-growth cities, including Dallas, Houston and Oakland, are seeing high rates of foreclosures."
"And rapid growth in new foreclosure filings threaten to put other high-growth cities like Las Vegas, Sacramento and San Diego into the above-average camp."
"Brad Geisen, a long-time investor in distressed homes, has a few tips for beginners thinking of making unsolicited offers to distressed borrowers. For starters, focus on a neighborhood you know well, maybe the one you live in, so you’ll have a rock-solid sense of local property values. If you’re lucky enough to find a homeowner willing to sell, they’ll want to close fast, and there won’t be enough time to research the neighborhood."
"Consider working with a 'hard equity lender,' who specializes in making loans to vulture buyers. They charge higher interest rates than local banks, but Geisen says the higher cost is usually justified by the guidance and advice they offer. 'It’s a second set of eyes on your deal,' he says. Your local mortgage broker should be able to refer you to such lenders."
"Get ready to work the phone, a lot. Geisen says the vast majority of distressed purchases happen well before the bank actually repossesses a home. You’ll have to find and cold-call homeowners who’ve been flagged as delinquent or who are still in the early stages of foreclosure, and you should expect to work on at least a dozen different homes before you hook a deal. In most cases, the best way to contact the homeowner is by telephone. Letters don’t work. 'You have to make personal contact,' he says."
"And be gracious. 'Offer to help them find a lender or an agent first,' he suggests. It might mean losing a potential sale in the short run, he admits, but a distressed homeowner is more likely to seek a deal with you later."
"Don’t waste too much time on how-to books and seminars. Most of them are 'OK for motivation,' says Geisen, but they don’t contain the genuinely useful knowledge of how to get a distressed purchase finished. That you’ll have to gain yourself, most likely by the first 14 or so deals you fail to close."
"One absolute no-no: Buying property sight unseen. Another: Taking it personally when deals fall apart. 'If you’re bidding a property up because you’re frustrated or you’re really trying to beat the other guy, you’re going to end up overpaying.'"
"A good lesson to remember, since more than likely, overpaying is what got the guy you’re buying property from in trouble in the first place."
