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Archive for Monday, January 7, 2008

Housing crisis considered at ‘halfway point’

January 7, 2008

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Browse the data: sheriff's sales in Douglas County

Lawrence-and the state of Kansas-has weathered the mortgage crisis better than most. One way to gauge the foreclosure storm is to look at sheriff's sales, which occur when homeonwers stop paying their mortgage and the house is auctioned off to the highest bidder.

Kansas weathering mortgage crisis

In 2007. a storm of foreclosures swept the nation. But Kansas - and Lawrence in particular - weathered the mortgage crisis better than most. Enlarge video

Lt. Steve Brown stood on the landing of the Douglas County Law Enforcement Center last week and started the sheriff's sale at 10 a.m. sharp - just as he had for almost every Thursday the year before.

Wearing jeans and work coats, prospective buyers of the foreclosed properties leaned against a wall and listened as Brown auctioned off two houses in under five minutes. Bank representatives in wool coats and gloves stood in front of Brown.

The sales - the first of the year for Douglas County - will be swept up and counted in the growing number of foreclosures in the United States. As in 2007, 2008 isn't expected to bring any relief to the mortgage crisis.

In the words of local bankruptcy and real estate attorney Jonathan Becker, the mortgage crisis has just gone into halftime.

"Right now, we are at the halfway point for bad loans that were made. We're halfway through the cycle," Becker said.

That's because a bulk of adjustable rate mortgages - those home loans that offer attractive interest rates for the first few years of the loan and then bump the rate up for the rest of the loan's life - are scheduled to reset in the next year. That means homeowners with those loans could see a huge jump - some as much as 50 percent - in their monthly mortgage payments.

Kevin Glendening monitors the foreclosure rates throughout the state. He is the deputy commissioner for the consumer and mortgage lending division with the Kansas Office of the State Banking Commissioner.

Glendening predicted that foreclosures will climb slightly higher - particularly this summer - before they go down. But he doesn't foresee a huge spike in the numbers.

"If you stop and think about it, a lot of this already happened. The foreclosures coming on the system now represent a loan in default some time ago," Glendening said.

Sheltered from the storm

Glendening stresses that Kansas is far better off than states in the Southwest, Southeast and in the Rust Belt area of the Northeast.

As of October, there had been 6,818 foreclosure filings in Kansas in 2007, according to RealtyTrac. In comparison, one of the hardest-hit states, California, had almost 357,000 foreclosure filings for the same time period.

Foreclosures in Kansas have been buffered by two forces: while other states had home prices skyrocket, Kansas had fairly steady appreciation in the real estate market.

Second, the state has some of the most comprehensive regulations for mortgage companies, such as keeping a list of approved mortgage brokers and lenders and conducting routine examines on companies.

Lawrence hasn't felt the housing hurt as much as other cities, such as Topeka.

Becker said some of that has to do with the even-keeled presence of Kansas University and - again - housing prices that didn't soar as much as those in Johnson County.

Records from the Douglas County Sheriff's Office show that 88 properties were sold at sheriff's sales in 2007. That's just three more than in 2006.

A sheriff's sale is the final step in the foreclosure process. It occurs when the homeowner stops making mortgage payments. In most cases, the bank buys the house back for the amount left on the loan. However, in some instances, developers or real estate agents looking for a sweet deal will purchase the home.

Foreclosures in Lawrence

Sheriff's sales aren't the only way to gauge how many homeowners are struggling with their mortgages. It's a trend that is tough to calculate because once a homeowner defaults on the loan, the process is complicated and can have many outcomes. For example, the owners can sell the house back to the mortgage company before a sheriff's sale, file for bankruptcy or, if they're lucky, they can work out a new loan and repayment schedule with the mortgage company.

While sheriff's sales haven't taken a big jump, bankruptcies have.

Compared with the first half of 2007, the number of personal bankruptcy cases filed by Douglas County residents increased by almost 30 percent. Since July, 112 cases have been filed.

While not every bankruptcy stems from mortgage problems, a good many do, Becker said.

At Housing and Credit Counseling Inc., appointments are up from those hoping to stave off foreclosure.

Jackie Blaesi-Freed, a counselor, rattles off the many scenarios of homeowners on the brink of foreclosure.

"We are seeing more people who have more financial difficulties," Blaesi-Freed. "They are also behind on credit card bills, car payments, they have things in collections. The don't just have mortgage issues."

Others have gotten caught in questionable lending practices. For example, an elderly lady was convinced to sign up for an adjustable rate mortgage that had been reset to an higher interest rate, exceeding what she can pay on a fixed income.

Other homeowners nearing foreclosure have been approached by lenders who want to buy the house and rent it back to them. Oftentimes these offers result in the company increasing the rent and forcing the former homeowner out.

Becker said he has seen loan applications where the lender falsified financial statements so the homeowner could qualify for more money and a pricier home.

Robert Baker, another counselor at HCCI, said he has heard of tenants thrown into situations where foreclosure notices end up on their doorsteps and the landlords can't be reached. Eviction is pending, they just don't know when.

Compared with 2006, the bank commissioner's office has seen a 36 percent increase in consumer-related complaints stemming from mortgage issues. Kansans filed 287 of them last year.

As for help on the way, Glendening said his office is contemplating a number of measures for this year's legislative session. He wouldn't comment on what those measures would be.

Already, many of the subprime loans have disappeared from the market, Becker said.

Both Becker and Blaesi-Freed question the good that President Bush's mortgage bailout plan will do. The proposal would have banks freeze the teaser rates on adjustable rate mortgages. But, there are restrictions on who can qualify.

Becker said it's the equivalent of a $30 fix for an $1,100 problem.

The number of foreclosures could have lingering effects for years to come, Blaesi-Freed said. She points to a potential drop in property tax revenue, vacant houses in neighborhoods leading to more crime, and homeowners strapped with unattractive credit scores.

"We'll get past the foreclosures, but we won't get past the crisis in two or three years," Blaesi-Freed said. "It could be a decade recovering."

Comments

WilburM 6 years, 7 months ago

Honestly, this story -- well reported -- seems to demonstrate that while KS and Lawrence have been affected a bit by this broad trend, the impact has been relatively modest -- in part because of sound governmental policies that were in place.

Kansas rarely experiences "boom and bust" cycles, for many of the reasons listed in the article. In the end, both KS borrowers and lenders have proved a good bit more prudent than those in the nation as a whole.

Sometimes it's best to be less exciting, less on the "cutting edge."

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Staci Dark Simpson 6 years, 7 months ago

They need to go after the bloodsucking brokers that sell the subprime products. We are stuck in a ARM and foreclosure is a possibility. I am not saying its their fault but had we been explained to what we were getting into I would NEVER have bought this house. Somehow people need to be educated about what is a bad deal and what is worthy of signing on the line. I should have at closing said I need these papers to review for a day with a financial advisor. Once again the blame is partly on me, but I think if I had any idea what I was getting into I would have ran the other direction

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BarbaraAnnJackson 6 years, 7 months ago

The worst factor of the Mortgage Mess is FORECLOSURE FRAUD committed via DEBT COLLECTION abuse and deception. COLLECTOR attorneys file foreclosures naming DEFUNCT mortgage companies, or naming mortgage companies which NO LONGER holds the promissory notes; or files foreclosures affixing "ransom" amounts (the collectors' fees) far exceeding "Acceleration Clauses." Even worse, when homeowners sue for "Unfair Debt Collection Practices," and various damages, collectors get to make even more $$ through protracted litigation.

In States such as Louisiana, 2 mortgage companies which benefit from fraudulent foreclosures are Wells Fargo and FREDDIE MAC. For such reasons representations especially by Freddie Mac about $$$ billions in losses due to defaulted mortgages should be weighed against the needless payments of law firms outrageous legal fees to outmaneuver -and even persecute people who file court proceedings in opposition to fraudulent foreclosures and repossessions.

ONE ACTUAL SITUATION: For a purported debt of $86,000.00, through use of a non-existent mortgage company, attorneys racked up more than a quarter of a million dollars in fees in litigations. Afterward, that property was sold to a 3rd party for $37,000.00. (The dollar amounts are rounded off.) Thus, Securities Investors got nothing, nothing practical was accomplished by evicting the homeowners, and property values declined in the neighborhood. Moreover, this kind of debt collector enables MORTGAGE COMPANIES to ILLEGALLY flip properties, and thereby deceive Securities Investors about the real estate market.

But, Securities Investors need to become more knowledgeable, responsible and take action about collectors as well as mortgage servicers' misdeeds which hurts borrowers as well as siphons incalculable amounts of money from what Investors profit. Also, see "Limiting Abuse and Opportunism By Mortgage Servicers," AND "Private Property Rights Deferred: Has Predatory Mortgage Servicing Destroyed The American Dream" by Rawle Andrews, Jr., Esq.,and Leroy Jones, Jr., J.D. at http://www.msfraud.org/index.

NOTES: â-Mortgage Mess, Foreclosure Fraud and Impediments to Justice newsblaze.com/story/20071203130614tsop.nb/newsblaze/TOPSTORY/Top-Stories.

â-ILLEGAL REAL ESTATE FLIPPING... www.lawgrace.org/2007/06/21/illegal-r...

â-Comment on the Foreclosure of Judge Reginald Badeaux's Home www.lawgrace.org/2007/12/08/my-decemb...

â-Federal Judges' Pay Raise; New Orleans Federal Judiciary Call To Impeach newsblaze.com/story/20080101084831tsop.nb/newsblaze/TOPSTORY/Top-Stories.

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smartmomma 6 years, 7 months ago

I don't understand why people don't look into the fine print of these type of loans before they sign and then get stuck in a forclosure......

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karmaxs3 6 years, 7 months ago

Hey Staci, it isn't "partly" your fault....it's entirely your own fault. Read anything you put your signature on, or don't blame anyone else for what you have agreed to in writing. Period. No one held a gun to your head. It's entirely your fault you trusted someone whose sole interest was to sell you a product. You are in charge of protecting your own financial assets. People like you are exactly why these scams exist in the first place.

If no one signed something so obviously financially stupid, the lenders wouldn't have anyone to offer them to, and this country wouldn't be in the mess it is in right now. Supply and demand.

Thank GOD the government now legislates protection from stupidity. Heaven forbid any of us would have to learn to take responsibility for our own actions.

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grimpeur 6 years, 7 months ago

I don't understand why a broker would sell a mortgage to someone who OBVIOUSLY didn't have the monthly income to make the note when the ARM went up. Just kidding--I know exactly why they do it, and it should be a crime punishable by jail time and fines.

Countrywide deliberately gave a mortgage to someone who they knew damn well can't make the payment? Tough. They deserve to be left holding the bag for predatory practices.

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toefungus 6 years, 7 months ago

Commissioned mortgage lenders are slimeballs.

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justthefacts 6 years, 7 months ago

Lots of people gambled when they signed up with an ARM. They were gambling they'd be making more money and that interest rates would not shoot up thru the roof. You can lose a lot of money (and a home) if you gamble. Anyone who can't pay cash for things needs to read all the fine print REAL carefully before agreeing to any kind of loan or credit deal. We keep borrowing money hoping the future will get better. And it does, sometimes. But most of the time, the professional gamblers (better known as financial business people) know the odds are in their favor, and they win more often then not. So don't gamble with your future. Avoid all debts like the plague!

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blackwalnut 6 years, 7 months ago

Americans are like alcoholics for credit.

Europeans save their money.

Americans are easy prey for bankers and realtors, and anybody else who wants to sell them a shiny thing they cannot afford.

If you have brains and character, you'll resist.

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Chris Golledge 6 years, 7 months ago

Bought my first house on an ARM. I just looked at what the max increase per year that was possible and figured that was going to be what happened. It was. Also figured out if I could live with the increases until I had the first opportunity to lock it down, which I did. Saved some money the first couple of years; paid for it later, but overall it worked out better for me.

ARMs are not all bad, but you've got to be realistic about what you are getting into and too many people are too optimistic.

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BunE 6 years, 7 months ago

The same housing bubble and bundled mortgages as securities is fast approaching Europe. They learned from us and at the same time learned nothing. They used to save more and now they save less and less. C'est la vie. Well maybe it will bring the Euro back to Earth.

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moveforward 6 years, 7 months ago

There are times when ARM's make sense. But when interest rates are nat or near historical lows, why in the world would you buy (yes BUY) a variable rate mortgage? It makes absolutely no sense. You are betting that the rate will be stable or go lower over the next 15 - 30 years. When has this ever happened? What makes anyone think that it is a reasonable bet? I know that this comes in hindsight, but it was quite apparent then - with just a little bit of effort.

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