Bad Credit Florida Mortgages Cause Despair in Orlando, State

Twanda Thompson doesn’t want to lose her home. But unless she can solve her Florida mortgage woes, she and her four children may have to start looking for an apartment.

Like many would-be homeowners with below-average or poor credit, the Orlando woman took out a subprime home loan during the housing boom to buy a place she really couldn’t afford.

Now her adjustable-rate mortgage is three months away from a boost in interest that will increase her monthly payment 30 percent. More increases lie ahead - and she already is delinquent on her loan.

“I’ve been on an emotional roller coaster,” said Thompson, a 34-year-old insurance agent, pictured below. “It’s just very stressful. I’ve worked so hard to get this far, to have a home and raise my children. To lose ground now is not acceptable to me.”

As the nation’s housing markets continue to slump, the bad credit Florida mortgage business is suffering a meltdown.

Many lenders flung open their doors to subprime borrowers during the five-year housing boom, looking to capture more of the market for such mortgages, which come with higher-than-normal interest rates.

Lured by artificially low “teaser” rates, people flocked to these lenders, hoping to fulfill the American dream of owning a home. But as the temporary discounts expire, reality is setting in, and mortgage delinquencies and foreclosures are spiking among the country’s subprime borrowers.

As of February, more than one in every seven mortgages in the U.S. was a subprime mortgage. And more than 4 percent of those subprime national and Florida mortgage loans were in foreclosure that month - more than four times the foreclosure rate of conventional mortgages.

This is, of course, traumatic for the borrowers, many of whom are low- to moderate-income minorities living paycheck to paycheck. Studies indicate that black and Hispanic borrowers are two to four times more likely than non-Hispanic whites to wind up with a subprime mortgage.

Defaults could hurt prices
But if the problem continues to escalate, the ill effects could spread. Subprime defaults could spill huge numbers of “bargain” homes onto the resale market, dragging down Florida home prices and stifling residential construction.

More than 1.15 million subprime borrowers across the country are already in serious trouble with their loans, according to the latest estimates from First American LoanPeformance, a San Francisco mortgage-data business.

The foreclosure rate for subprimes nationwide nearly doubled between February 2006 and February 2007, First American calculates, while the severe-delinquency rate (the percentage of loans with payments at least 60 days late) jumped more than 60 percent in the same 12-month period.

In Florida, nearly 93,000 subprime-loan homeowners were in the lurch as of February, according to First American. And during the previous year, the state’s subprime-foreclosure rate tripled, while its delinquency rate shot up 72 percent.

The Sunshine State is exposed to the problem more than the U.S. as a whole: Nearly 20 percent of all Florida mortgages in the state were subprime as of the end of January versus 15.3 percent nationwide. So far, at least, Florida’s subprime-delinquency rate (10.2 percent) is lower than the national average (12.2 percent).

The Central Florida housing market’s subprime problems have generally been less acute than even the state’s, though the region has not been immune. Brevard and Volusia counties, for example, have some of the highest foreclosure and delinquency rates among Florida metropolitan areas.

Warning signs locally
Even Metro Orlando’s subprime foreclosure and delinquency rates, still among the lowest in Florida, have spiked in the past year. The foreclosure rate in the metro area (Orange, Seminole, Osceola and Lake counties) almost tripled to 2.8 percent, while the delinquency rate more than doubled to 8.5 percent.

Local experts say turnover in homes financed with subprime Florida home loans may already be contributing to the region’s housing slowdown. The inventory of homes for sale through the Orlando Regional Realtor Association, for example, has nearly doubled since January 2006, while the year-over-year change in median price for homes sold through the Realtors has dwindled from a 24 percent increase in January 2006 to zero as of this March.

“You have to look at the two different sides of the coin,” said William Weaver, a real estate professor at the University of Central Florida. “The problem is a lot worse now than in the past, and it is likely to get even worse.

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