Easy-to-Acquire Florida Home Loans Cause Thousands in South Florida to Default
In a troubling study conducted by The Palm Beach Post, more than $106 million in Florida home loans has already collapsed this year acors Palm Beach, Martin and St. Lucie counties. This can be compared to the $68 million in mortgages defaulted in the first quarter of 2005.
Experts fear the worst is yet to come.
“We know the whale is coming, we just don’t know how big the whale is,” said Mike Flagg, a spokesman for the Center for Responsible Lending, a Washington nonprofit that tracks lending practices.
Troublesome Florida home loans for ALL owners
What is known is that, rich and poor alike, South Florida homeowners are on a collision course with the fast-money home loans and loose state regulation that injected extra risk into a region ripe for exploitation.
As the state’s hot real estate market grew hotter, thousands of new brokers and brokerages obtained licenses to operate in Florida. That coincided with the availability of new types of nontraditional Florida home loans, which gave far too many middle-income buyers who couldn’t afford it a shot at living in a half million-dollar home.
Fred Glicl, managing member of U.S. Loans Mortgage LLC, a Chicago-based mortgage broker doing business in Florida and other states, cited these factors as contributing to the “feeding frenzy” in the area.
Some of the Florida mortgage loans offered, however, were never intended for the middle class.
“I think the reason we are going to see so many foreclosures, so many more than we have ever had in the past, is because a broker or loan originator has gotten people into these crazy kinds of loans,” said Steven Schneider, president of the Florida Association of Mortgage Brokers.
These “exotic” Florida home mortgage loans, as they’ve come to be known, include newer adjustable-rate mortgages, also known as option ARMs, which start a borrower at one rate and can adjust upward with time. Interest-only loans allow borrowers to lower their monthly bills by paying only interest in the early years of the loan. In both cases, the terms of the loans change. That can spell disaster, particularly in a market facing both declining real estate values and rising Florida home loan rates.
Inside this Florida home loan study
The analysis of RealeSTAT.com data showed that roughly half of the defaulted Florida home loans had some form of adjustable rate feature. More than $65 million in defaulted home loans carried interest rates of at least 10 percent.
Typically, a sub-prime loan is made to a high-risk market of borrowers that includes those with lower credit ratings. But not all of these borrowers had poor credit. National research by Freddie Mac found that approximately three of every 10 people with a sub-prime home loan had good enough credit to qualify for a less pricey mortgage, raising concerns that even people with good credit are being steered into unnecessarily costly deals.
The Florida Attorney General’s Office issued a consumer alert in February warning people about unscrupulous lenders. It noted another national comparison: In the early 1990s, only one of 20 mortgage loans was a high-interest sub-prime loan. By 2004, one out of five was in that category.
The danger of certain Florida home mortgage loans
Far from the rock-bottom interest rates of recent years, many local loans started off with hefty double-digit rates, which are now creeping upward. It’s dangerous for some Florida mortgage loans right now.
There’s evidence that thousands of wide-eyed borrowers fell prey to the lure of easy money:
• A St. Andrews Country Club home fell into foreclosure only 60 days after its owner took out a $1.9 million loan.
• A Boynton Beach man was in his $248,000 villa just four months before the $1,845.74 monthly payment proved too much for him.
• A Lake Worth couple slipped into default one month after refinancing at an 11.99 percent interest rate.
Thousands of new brokers have made thousands of new Florida home loans. In the Palm Beach housing market, only 143 of 702 mortgage broker businesses, lenders and branches were here before 2000. In St. Lucie County, just three predate 2001.
If there is a bright spot among the mortgage defaults, it is that the market is still strong enough for some to sell their homes and pay off their debt — before a formal court judgment takes the roof from over their heads.
That’s what one borrower did after losing his home of 14 years to a 13 percent interest refinancing. But it’s been scant comfort. “Yes, I got a few thousand from it, but how long can that last?” asked the West Palm Beach man, now living in an apartment. “They may as well have turned me out on the street.”
It’s a difficult time to own Florida real estate in some circles. But if the market is cooling for them, it should result in the lowering of prices and, as a result, an ideal time for new buyers seeking a Florida home loan.
