Foreclosure trend strikes Tri-county area

By Mike Ford, The Delphos Herald
Published:  Saturday, October 6, 2007 (10 months, 4 weeks ago)
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Elida FFA celebrates Apple Butter Day It was a hot day Thursday for Apple Butter Day but hosting Elida FFA students took turns stirring the tasty spread. Elementary students also learned about farm machinery and safety tips and got to pet several barnyard animals.The number of nationwide foreclosure filings reported in August was more than twice that of August 2006. Numbers specific to Ohio also show many homeowners are increasingly unable to make their mortgage payments amid a housing slump, job loss and poor economy. Tri-county foreclosure numbers are lower than other areas but the trend is just as present.
“Allen County had 164 new foreclosure filings in 1995. In 2004, it had 531; in 2005 it had 591; and in 2006 it had 647. So, its rank in growth has almost quadrupled,” said Zach Schiller, Research Director of Policy Matters Ohio.
He said Allen County currently ranks 27th of Ohio’s 88 counties, while Van Wert County is 44th and Putnam County is 86th. The raw numbers are lower but the increase is still alarming.
“Putnam County was up from 16 to 86; that’s a 437.5 percent increase. Van Wert went from 18 in 1995 to 149 but was only up from 147 to 149 last year,” Schiller said. “What this shows is that this isn’t a new problem in northwest Ohio — it’s a problem that has been increasing over a whole decade.”
Though there are several factors that contribute to the issue, Schiller points the blame at one particular component.
“Clearly, the poor economy contributes to the increased foreclosures. However, you can focus too heavily on that because a very significant element is predatory lending. If it were only a poor economy, we wouldn’t have seen the kind of increases we saw in the late 1990s,” he said.
According to Schiller, many large investment firms from around the world purchase bundles of mortgage loans, then the payments increase on loans without a fixed rate, which are usually sold to homeowners with credit challenges. Legally, this is permitted and not categorized as “predatory.”
First Federal Bank Loan Officer Cindy Metzger said local banks usually operate differently. First Federal loans are not “bundled” and sold to investors. Rather, the bank’s mortgages are sold to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly referred to as “Fanny Mae” and “Freddy Mac.” This practice is an alternative to banks lending from their deposits, which most are unable to do for financial reasons.
“About 75-80 percent of all people in the United States have their loans sold to the secondary market; that’s Fanny Mae and Freddy Mac, which are government-sponsored entities. They’re actually the ones lending the money through banks and they’re the ones offering the 15, 20 and 30-year fixed rate,” she said.
“There are a couple sides to a mortgage loan. There’s the servicing of the loan and then the loan itself. We at First Federal retain servicing on all our loans, so that stays local but the mortgages themselves are sold off individually to Fanny Mae and Freddy Mac. We don’t bundle them.
“It’s not the fixed-rate loans that are causing people problems. It’s the adjustable-rate mortgages where rates start out low but as soon as the first adjustment rolls in, their payments go up higher than what they’re able to handle.”
Metzger said the outside firms run into trouble because they are unfamiliar with a particular region’s job-loss, economy and other factors.
Schiller doesn’t believe it’s a simple matter of unfamiliarity.
“Many things coincide to create this situation; it isn’t just one thing. You have mortgage brokers, and some of them are rascals; and you have non-bank mortgage lenders who promote products people can’t always afford but everyone is getting their fees and making money from it. This is all happening on a global scale — it’s just as much a phenomena in Cleveland as it is in Van Wert. The scale is different but we’ve seen a massive increase in foreclosures all around Ohio,” he said.
First Financial Bank Loan Officer Andrew Kiess described how large brokerage firms try to make money from purchasing mortgages.
“When you take a bundle of loans and sell it to an investor, they pay a premium for the loan and take it to the securities market and put it in the stock market to try to get another premium for it. The servicing agent has already been contracted and is being paid to collect payment, so as they do so, the servicing department keeps making money but they’ve already paid the investor. The investor isn’t the one who forecloses, it’s the servicing company who forecloses and doesn’t work with the borrower on payments. The acceleration clause within the mortgage contract states that if you fall more than 60 days behind, they won’t accept a $50 payment. So, it’s all or nothing and that’s the legal part of the mortgage; it’s drawn up to protect the lender,” he said.
Though Allen County has some urban population where one may expect to see an increased foreclosure rate, Schiller says trends prove that lending practices are the primary factor.
“Foreclosure rates are growing faster in the suburbs than in Cleveland and in the most affluent suburbs than in the less affluent ones. It’s true that overall rates are higher in lower-income areas but this is not limited to people making, say, $20,000-a-year or less. It’s happening in a big way in more affluent areas and also in rural areas,” Schiller said.
He added that the decline in the housing market has factored in, as well. Ohio has not had the “housing boom” experienced by other regions in recent years. In places such as California and Colorado, homeowners have had the option of selling their home at a profit when loan payments increased. However, California now has some of the nation’s highest number of foreclosure filings: up more than 300 percent in August compared to August 2006, according to state and Associated Press reports.
While this complicated web of factors spreads responsibility to many parties, Kiess said homeowners also share a portion of it.
“Customers take the 2 or 3-year introductory rate because it’s lower than the 30-year fixed rate. They were probably assuming their credit would get better or the value of their home would increase. The adjustable rate loan has a built-in 3 percent jump after the second or third year. After the first increase, it can jump one percent every six months. That’s signed by the customer. The customer is to blame, as well. They had other options when they took out the loan. Everybody’s beating up on the banks and the economy but the customer had the opportunity to take a 30-year fixed rate when they took out the loan and they didn’t,” he said.
The Ohio Department of Commerce Office of Consumer Affairs recommends borrowers facing financial hardships contact their lender to discuss options prior to missing payments. These may include a forbearance agreement, loan modification and more. If a foreclosure is filed, the office recommends seeking immediate legal counsel and/or log on to the U.S. Department of Housing and Urban Development’s web site, hud.gov, for information on an approved counseling agency. When borrowers do not respond to foreclosure filings, the court may default a judgment against the borrower in question. The court may make a formal determination that the borrower has not made payments on schedule and the borrower is not disputing the issue. The court will issue a default judgment and the house will be ordered to be sold unless the borrower can somehow satisfy the judgment. The funds obtained from selling the home will be used to pay the debt owed to the lender. If the amount is not enough, the borrower will continue to owe the lender.

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