|More homes are going, going, gone|
"You-know-you-will-it's-like-Nike-just-do-it," Richards said in the jammed hotel ballroom here recently as he hawked a two-bedroom, one-bath fixer-upper. Less than a minute later, the house was sold. In two hours, 61 were auctioned, all of them foreclosures — homes whose owners had defaulted on their mortgages.
The scene is being repeated coast to coast as foreclosures tick up nationally. About 4.7% of homeowners were late on their mortgage payments in July through September this year, up slightly from 4.4% in the third quarter last year, the Mortgage Bankers Association said Wednesday.
The delinquency rate has fluctuated between about 4% and 5% for the past five years. This latest rate, though, is the highest since the end of 2005, and it's expected to rise gradually through most of next year. "We do expect to see continued modest increases in delinquencies and foreclosures over the next few quarters, mid- to late-2007, as the housing market bottoms out and then begins recovering," said Doug Duncan, MBA's chief economist.
One of main factors pushing up foreclosures: the number of borrowers who've fallen behind on their adjustable-rate subprime loans — high-interest mortgages for those with impaired credit. Those borrowers account for about 4% of all mortgages. Their loans typically start with low "teaser rates" that begin rising after a year or two, pushing up the monthly payments sometimes beyond what the borrower can afford.
"In California, I saw a billboard that said, 'Own the home you want, not the one you can afford,' " says Thomas DiMercurio, a Denver real estate broker who specializes in bank-held foreclosures. "That was so silly."
ARMs cause problems
Nearly 14% of subprime borrowers with adjustable-rate mortgages (ARMs) were behind on their payments last quarter, the highest rate since the start of 2003. That figure is all but sure to rise next year, when at least $1.2 trillion in ARMs will reset to higher rates. About half that amount is expected to be refinanced into lower-rate fixed or adjustable loans, Duncan says.
Already, refinance applications have reached their highest point since September 2005, the MBA said Wednesday, as rates for 30-year, fixed-rate mortgages have unexpectedly fallen to their lowest since January.
About 1 in 10 homeowners in California with a subprime ARM was behind on mortgage payments in the third quarter. The rate is twice that in states such as West Virginia, Michigan and Alabama, where job losses have battered the housing markets.
The loss of a job is the No. 1 reason people go into foreclosure, followed by health problems and a death in the family. Typically, a lender will start foreclosure proceedings after a borrower misses payments for three months in a row. The homeowner can try to sell the property first. But that can be hard in areas where home sales are falling.
That's what happened to Bill and Dana Pittman in Denver. Dana lost her teaching job last year, then needed surgery for a brain tumor. The couple managed their mortgage payments with Bill's wages as an auto mechanic and an inheritance from Dana's parents.
When the inheritance ran out, they fell behind. "I should have tattooed across my forehead, 'Real estate stupid,' " says Dana, 51.
She says she wrote "a letter of hardship" to the mortgage company last summer, but "It was, like, 'Oh, well, too bad. We want our money.' "
To stave off foreclosure on their suburban home, the Pittmans have been trying to sell a small vacation home they own in a remote valley three hours south of Denver. But with no takers despite a cut in the asking price, they don't expect to sell it before they put their main home up for auction on Jan. 3.
If so, they say they'll have to make their vacation house their new home, even though it's more than an hour's commute from the closest towns where they could find jobs.
"It was supposed to be our retirement home," Dana says.
While Colorado's delinquency rate of 3.6% is below the U.S. average, there are areas such as Denver where a spike in foreclosures has caused considerable concern among residents and regulators.
Not that all foreclosures reach the auction block. Some owners are able to sell or refinance to pay off their debt. Some lenders permit borrowers who are in trouble to tack missed payments onto the end of the loan while they try to resolve their financial difficulties.
The hardest-hit states are Mississippi and Louisiana, where homeowners are still struggling to recover financially from Hurricane Katrina. But other states that have lost auto, airline and other jobs have also seen jumps in foreclosures and delinquencies. Among them: Michigan, Indiana and Ohio.
Noelle Knox reported from McLean, Va.