Written by Beth Pleming Tuesday, 22 December 2009 21:43
The effects of what experts call overly confident consumers and eager-to-lend banks carried away in the tide of a thriving economy caught up with nearly 350 property owners in Haywood County this year who went through foreclosure.
They were not alone. When the economy was strong, banks had more money to lend and did so with less discretion. Then came the stock market crash, followed by an unprecedented spike in unemployment and the collapse of the credit market. Homeowners all over the country were swept away with the changing of tides.
Foreclosure numbers have since soared (see adjacent chart).
In Haywood, special proceedings, which include foreclosures, were up more than 100 cases over last year's numbers, according to Superior Court Clerk June Ray, who conducts foreclosure hearings.
"I can't say they are all foreclosures, but the majority of them are," she said.
As of Nov. 30, a research analyst for the North Carolina administrative offices of the court said the number of civil foreclosure cases heard in Haywood this year was up to 348 "” the highest it's been in 10 years.
It isn't just lower income families losing homes anymore, said Ray. A lot of the homes going into foreclosure are high-end second homes, many valued at seven figure prices. Big developments have also taken a hard hit.
For the past three years, Tom Mallette of Realty World Heritage Realty and Home Retention Consultant, has been counseling county residents who are behind on mortgage payments and facing foreclosure.
Reasons for foreclosure are as diverse as each individual case, he said.
"It's hard to pinpoint a specific reason. I've seen everything," said Mallette. "There seems to be a lot more divorce these days, which seems typical for a recession when there are more pressures on a marriage. But probably the biggest reason is loss of income due to a decline in hours of employment. A lot of (employers) are cutting back."
Fundamentally, however, the bottom line for many homeowners is simply that they have overextended themselves.
"People overbought," said Mallette, later adding, "Banks are part of it, too. They gave mortgages to people who should never have gotten them. ...When the market was so high, they gave mortgages to everybody."
Since that time, changes in the market have forced banks to change their standard.
"Lending standards have really tightened up and actually gone in the opposite direction," Mallette said. "They've gotten so restrictive, which has limited the number of homeowners out there. They are starting to loosen up now, but it will never go back to the way it was. Banks are now triple checking to make sure people are qualified to buy."
Many homeowners also misused equity money, further deepening the financial hole.
"When the market was much higher, people were able to borrow equity on their homes," said Mallette. "But they were borrowing equity to buy recreational type things: vehicles, boats, etc. "” what I call "˜toys.' "¦That's not the purpose of (equity) money. The purpose of equity is to put money back into the home to increase the home's value. "¦A lot of people are also making less due to lost jobs. Whatever the case, the mortgage has become a bigger burden."
While foreclosure numbers tell a story of their own, Mallette said, all is not doom and gloom. Those at risk of foreclosure do have alternative options, and banks are eager to work with homeowners to avoid the ultimate peril.
Banks don't want the house back, Mallette said. It costs a bank, on average , $40,000 to foreclose on a home.
"It's not in their best interest to go ahead and do that," he said. "So, they figure it's better to get in touch with homeowners and work something out, rather than have another property on their hands."
In the past, when financing was more readily available, foreclosures were a hot market for investors looking to turn around a good deal. That's no longer the case. Foreclosure "hounds" "” those who shop foreclosures for good investment deals "” are becoming a thing of the past, said Ray.
As a result, "Most foreclosed properties are going back to the bank," she said. "You don't see what we call "˜hounds' anymore because it's so hard to get financing. "¦I've also noticed a lot of banks are postponing foreclosures. They can't get what the houses are worth because people are upside down on them. "¦Banks are usually very willing to work with homeowners to help them avoid foreclosure."
That's where Mallette, as a home retention consultant, comes in to play. He makes personal visits with homeowners to explain foreclosure alternatives, in an attempt to resolve the issue and keep people in their homes.
Ideal alternatives, he said, include mortgage modification and refinancing "” plans that allow individuals to stay in their home and work with banks to get a more manageable payment.
The government's "Making Homes Affordable" program that went into effect this year is also helping to offset foreclosure numbers by helping owners to modify or refinance mortgages.
"It's helping some," said Mallette, by modifying mortgage payments for those already behind. Those who are current on payments have the option of refinancing, but must be able to show that the current financial burden is unmanageable.
"With modification, (lenders) will try to get loan payments within 31 percent of the total debt," said Mallette. "For a lot of people right now, their mortgage is 60 percent of their debt per month. It's just much too high, and they are drowning in the mortgage of their house."
In those cases, it worst to give up, he said.
"One of biggest mistakes homeowners make is not responding to their lenders. They do what I call "˜putting their heads in the sand' and hope it will go away, or wait to be foreclosed on," said Mallette. "They figure, "˜It's going to happen. I can't do anything about it. The bank won't work with me,' so they sit back and wait for the house to be sold or to be kicked out."
Part of the breakdown in communication occurs due to lack of direct contact between lenders and those who are behind on payments, he continued. Rather than homeowners hearing of possible alternatives, they most often only get hassled over their debt.
"Generally people who call are in the collections department. They don't work for the bank and don't know much information. Their duty is simply to collect money," he said. "They aren't usually real friendly because they are paid according to collections. "¦ What homeowners need to do is speak with their lender directly. If they are looking to modify the mortgage, they should speak with the bank's modification department."
For more information about affordable housing programs, visit: makinghomesaffordable.gov, and hopenow.com.