The Foreclosure Report

'Really Relaxed' Standards Behind Defaults

A foreclosure report from North Carolina. "There are four houses in all, valued between $79,000 and $178,000. Each represents a piece of the American Dream. They are all up to be sold at foreclosure auctions Monday at the Forsyth County Hall of Justice. Barring a postponement, an additional 42 are to be auctioned off there this week."

"There's a wave of foreclosures sweeping through the Triad. On average, foreclosure proceedings begin against five Forsyth homeowners every day, according to the N.C. Administrative Office of the Courts. For the Triad, it's about 22 homes a day."

"The foreclosures come at a time when the economy is still strong, new neighborhoods seem to spring up from every pasture with good road access, and nearly two-thirds of Americans own a home. In recent years, residential developers, lenders and potential home buyers have pursued increasingly creative, and risky, mortgage strategies, said Chris Estes, the executive director of the N.C. Housing Coalition."

"Tony Plath, a finance professor at the University of North Carolina at Charlotte, said that 'really relaxed' mortgage-underwriting standards means that 'just about anybody can qualify for a 100-percent, loan-to-value mortgage on a house.'"

"Unfortunately, Estes said, 'this pursuit is getting people into homes with little, or no, financial cushion.'"

"The housing boom has pushed the average selling price for an existing Triad home to $180,103 in August, up from $145,327 in January 2004, according to the N.C. Association of Realtors. But Joseph Smith Jr., the state's banking commissioner, said during an N.C. House hearing on foreclosures in February that changes in mortgages since the mid-1980s have created a 'good, bad and ugly' market for loans."

"'The good is a significant increase in the availability of mortgage credit that has resulted in a material increase in homeownership at all levels of income,' Smith said. 'The bad is an increased rate of foreclosures, and the ugly comprises two evil twins - predatory lending and mortgage fraud. The rate of mortgage foreclosures has gone up dramatically in recent years, and mortgage issues account for a substantial majority of the complaints my office receives.'"

"Foreclosure filings in the Triad surged from 2,480 in 1998 to 7,701 in 2005, according to the Courts. Filings in Forsyth rose from 567 to 1,784 over the same period. Through Sept. 18 this year, there have been 1,287 filings in Forsyth and 5,738 in the Triad."

"'One of the fallacies of foreclosures is it only affects poor people,' said Rick Sharga, a vice president of marketing for an Internet real-estate clearinghouse. 'It's beginning to affect more well-to-do families. While they may have a $300,000 to $500,000 home, some still live paycheck-to-paycheck because of their lifestyle.'"

"Some people dig themselves into a deeper financial hole by not attempting to sell their home as they near mortgage default, economists said. Other homeowners don't have that option because they live in neighborhoods whose housing values already are depressed from earlier foreclosures."

"Alternative-mortgage products such as interest-only loans traditionally have been offered by banks, mortgage lenders and mortgage brokers 'as a financial-management tool to wealthy and sophisticated borrowers,' the federal General Accountability Office said in a Sept. 20 report to Congress."

"'In recent years, however, alternative-mortgage products have been marketed as an 'affordability' product to allow borrowers to purchase homes they otherwise might not be able to afford with a conventional, fixed-rate mortgage,' the report said."

"The General Accountability Office said that it is too soon to tell 'to what extent payment shocks would result in increased delinquencies or foreclosures for borrowers and in losses for banks.'"

"But economists said that it won't be much longer before that question is answered. According to the Mortgage Bankers Association, about a fourth of the nation's mortgages are ARMs that are scheduled to reset at least 2 percent higher by the end of 2006 or during 2007."

posted by Ben Jones @ 2:20 PM