Foreclosures Continue to Rise Nationally
Mortgage foreclosures are on the way up. Nationally, they are 38 percent higher than in any quarter of last year to be exact, according to the Chicago Tribune.
RealtyTrac reports that the numbers are the most grim in the Midwest. Michigan and Ohio, battered by automotive-related job losses, recorded 45,000 mortgages entering some stage of foreclosure in the first quarter. That equates to increases of 91 percent and 39 percent, respectively, compared with last year’s Q4.
In Florida and beyond, there are many reasons for the defaults, and many believe the foreclosure trend is just getting started. Corporate layoffs, health care issues, increasing consumer debt and rising Florida mortgage rates all are factors. In addition, a growing number of homeowners are relying on adjustable-rate loans and are caught off guard by rising payments.
Some of those adjustable-rate mortgages (ARMs) were offered with an initial 3- or 5-year period in which the rate was fixed. At the end of that period, mortgages reset at prevailing rates, potentially upending borrowers. For many people, that moment is approaching. Fast.
“The increases we’ve been seeing in real estate foreclosures don’t even reflect the worst-case scenario that could happen when the $2.7 trillion in adjustable rate mortgages are reset over the next 18 months,” said Rick Sharga, V.P. of Marketing at RealtyTrac.
Another factor is the impact of property values in fast-growing housing markets. In some cases, people are stretched to qualify for a Florida home loan only to be undone by higher home prices, rising utility bills and gasoline costs.
Not surprisingly, losing jobs can trigger mortgage defaults.
Archie Tolar once earned about $3,000 a month as a salesman at a suburban car dealership. Since losing his job in 2002 Tolar has struggled to make ends meet, relying mostly on $400 a month in disability payments.
“To go from $3,000 a month to $400 doesn’t even cover the mortgage,” said the Harvey, Ill., resident, who has a foreclosure filed against him. “[The mortgage company] is supposed to call me in 2-3 weeks to give me whatever options I have.”
Tolar, whose payment was $435 a month, was among the 6,451 Illinois people hit with foreclosure notices in April. That number was strikingly higher than in any month since the beginning of last year.
“It’s a big jump but from very, very low numbers on a historic basis,” Alexis McGee, president of Foreclosures.com, said.
Historically, about 1 percent of loans go into foreclosure. William Gooch, CEO of Community Bank of Elmhurst, Ill., suspects that lending policy plays a role in the foreclosure trend. Competing fiercely for business, financial institutions are making non-traditional home loans available to marginal borrowers.
“People think they have to loosen their restrictions, their guidelines, their policies,” said Gooch, who added that mortgage brokers seem to be springing up like dandelions, and clarified that the most delinquent loan at his own institution is eight days late.
“During the refinancing boom people found themselves qualified for homes they might not have qualified for if the interest rates were higher,” added Jeff Metcalf, CEO of Record Information Services, a Kaneville, Ill.-based collector of market data.
Exacerbating the increase in foreclosures is the toughening of bankruptcy laws, which have changed and are making it harder for people to get debt relief on their other obligations. Also, many people have tapped into the equity in their homes, a practice that can haunt them when and if a fiscal emergency strikes.
“If people have no equity in their property, they have few alternatives if they lose their job, or have a health issue or other problem that makes it impossible to make their payments. When they fall behind on their payments they end up in foreclosure,” Jane Garvey, president of the Chicago Creative Investors Association, said.
Darlene Slabenak has lived in her Berwyn, Ill., house for 33 years. The divorced mother of four returned to college and went to work for an eye surgeon for 15 years. In 2003 she lost her job due to complications of tarsal tunnel syndrome. Despite raiding her retirement fund and getting financial help from her boyfriend, Slabenak went into default.
Slabenak said her monthly payments used to be $657. Charter One raised it to $1,333 and then, in February, to $1,600.
“They wanted me to sign a paper saying I’d pay $1,600 a month for the next six months, and I refused to sign it. I sent them $3,800 for January, February, March and April. They sent me a foreclosure letter because I would not sign that paper. The house has been up for sale for three months and I’m praying to God I can get out of this place,” she said.
When Amanda Acuna got sick and was out of work she fell behind on her $950 a month mortgage payments. She said she found it difficult to work out a payment schedule with her mortgage lender, National City Mortgage Corp.
“They were saying that they wouldn’t take anything but the full amount to make it current,” said the Bartlett, Ill., resident, who is now trying to sell the house for $144,000.
Most foreclosure proceedings begin when an owner misses three payments, and the lender files for a judgment. It usually takes seven months from that filing date for a property to go to auction. During that period, the owner still has rights. A potential investor can approach the homeowner and offer to buy the home and assume the loan.
