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Foreclosures closing in on mid-Missouri housing market

Friday, May 9, 2008 | 5:07 p.m. CDT; updated 12:00 p.m. CDT, Tuesday, July 22, 2008
Dark clouds loom over the Boone County Courthouse just before a foreclosures auction on Feb.25.

COLUMBIA — Small storage boxes attached to front doors hold the keys to the empty houses and require a combination for realtors, bankers and home inspectors to enter. On the windows of some of these houses, white public notice signs with black type-print letters warn against trespassing. Other houses show the signs of vacancy: grass that could use a mow and blinds that go unused.

Boone County hasn’t been hit as hard as other parts of the country, but foreclosures continue to affect the mortgage market and housing economy, and some expect the number of local foreclosures to reach record levels in 2008.

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The fallout isn’t limited to families forced to find another place to live. Financial counselors are seeing an increasing number of homeowners who have fallen behind on their payments, and state officials are devoting more time than ever to people asking for help in warding off foreclosures of their homes, businesses and real estate. Brokers say conventional lending markets have tightened, leading to more government home loans that are harder to obtain.

Boone County witnessed its first spike of foreclosures in 2003, when the number rose from 99 the previous year to 150, according to the Boone County Recorder of Deeds office. Banks foreclosed on 143 homes and other properties in Boone County during 2006, and that number increased to 231 in 2007.

During the first four months of this year, 103 foreclosures were recorded in Boone County compared to 58 during the same period in 2007.

“I think this year is definitely going to be a record year in terms of foreclosures,” said Bob Peery of Premier Mortgage Service. “In the near future, they’re going to get worse.”

Annie Pope, executive officer of the Home Builders Association of Columbia, said her industry is feeling the effects.

“We have an economy that is somewhat recession-proof. That’s why I think it took a little longer to come to Columbia,” Pope said. “We’re not as immune as we had liked to believe.”

Realtor Greg Harmon of Hallsville, who buys and sells foreclosed homes, said housing values overall “have definitely been affected” because banks tend to sell foreclosed properties for less than market value. Harmon said these properties sometimes sell for less because of their condition. “It may be 2 percent, but it’s still less,” Harmon said.

The U.S. Office of Housing Enterprise Oversight reports that fourth quarter numbers in 2007 showed a “declining” market for Columbia’s metropolitan area, meaning the prices of homes in Boone County and Howard County fell 0.72 percent. It’s the first time the area housing market has declined since the second quarter of 1989 when housing prices fell 0.62 percent, according to the government program’s Web site.

A good percentage of the loans used to purchase foreclosed properties in Boone County were adjustable-rate mortgages, local lenders and realtors say.

“Ones that I know of have been on a two- or three- year adjustable rate mortgage,” said John Schupp, area manager for Better Life Mortgage in Columbia. “On an average month, there’s going to be anywhere from 20 to 40 people that have taken out an ARM that is going to reset.”

When the rate of an adjustable mortgage resets, it can often mean a large increase on the interest rate, making the property owner’s payments increase rapidly.

Shane Winter of Winter Financial Counseling in Columbia said he receives 20 to 30 phone calls a month from homeowners asking for advice about their adjustable-rate mortgages.

Clients worried about their adjustable-rate mortgage continue to take up more time for Joanna Kollmeyer, a certified financial counselor at Consumer Credit Counseling Service in Columbia. Kollmeyer said she spends about 20 percent of her time talking to folks worried about their mortgages.

“The biggest thing is the adjustable rate. A lot of people found they were in a two-year fixed, and then it went to the adjustable,” Kollmeyer said. “Right now is when they’re getting out of the two-year fixed, and then they’re getting into the adjustables.”

Those who speak with homeowners on a regular basis hear a more desperate tone of late.

“Of the 20 percent that come in, 80 percent are already behind,” Kollmeyer said. “A lot of times they don’t start getting real scared about it until they start getting the letters from the lender mentioning the word foreclosure.”

Kollmeyer said she’s noticed the frequency of calls pick up during the past year or so.

Joe Crider operates the mortgage-consumer hot line in the state Division of Finance. “Lately, I would say the most predominant theme is people are behind,” Crider said.

He said he’s fielding more calls from people telling him, “Hey, they’re going to take my home away from me.”

Realtors and lenders have seen scenarios other than adjustable-rate mortgages lead to foreclosures. Some buyers purchase their homes by borrowing 95 to 100 percent of the cost with little or no down payment. Then, somehow, they fall behind on their payments.

“If I put $20,000 on a house, I’m going to do everything I possibly can, because if I lose that I’ve lost my house and $20,000,” Peery said. “If I do a 100 percent financing, what do you give up? It may hurt your credit, but as far as financially, there’s no consequence. That’s why some of these people are letting it go back.”

Homeowners who have lost their homes to foreclosure also have difficulty finding a loan to buy another house.

Schupp of Better Life Mortgage said a three-year wait “is pretty much a rule right now” before someone involved in a foreclosure can secure a loan to buy another house.

People have also purchased a house and seen its value depreciate. In these cases, the owner can owe more than their property is worth, leaving them upside-down in their loan.

Subprime lending practices that have been singled out for blame in the national foreclosure crisis have also done damage in Boone County. Subprime home loans — loans with a higher rate, often given to those with lower credit scores — accounted for 8 percent of home loans in Boone County during in 2004, increasing to about 16 percent in 2005 and 2006, according to the most recent figures available from the federal Home Mortgage Disclosure Act.

Mortgage brokers say subprime loans have come and gone in the Columbia market.

“The subprime market for these types of loans has virtually disappeared,” said Wendy Swetz of Gateway Mortgage Group.

But subprime loans were very much in play as recently as 2006. And there’s evidence that subprime lending practices have affected some areas more than others.

In 2004, 20 percent of home loans were subprime in an area that includes some of Columbia’s First Ward near Business Loop 70, according to the Home Mortgage Disclosure Act. The next year, subprime loans accounted for about 51 percent of the loans in the same area. In Centralia, subprime loans made up 7 percent of all home loans in 2004 and 19 percent in 2005.

Actions by mortgage mammoths such as the government lending agency Fannie Mae have also changed Columbia’s home lending market. Brokers used to be able to finance a mortgage 100 percent if the person had a 580 credit score, Peery said. (Credit scores range from the 300s to the 900s. The higher the score, the better one’s credit.) About six months ago, Fannie Mae changed the minimum credit score to 620. Now, with Columbia’s declining market, a homeowner must have a credit score of 680 to receive 100 percent financing from Fannie Mae or its business relative Freddie Mac.

“You’re going to have consumers that would have qualified for those Fannie, Freddie loans just not get a loan right now,” said Chris Sanders of Allied Mortgage in Columbia. Sanders said his business isn’t necessarily turning down customers seeking home loans but is taking steps “to educate them on possibly saving for a down payment.”

Peery said he plans to shift the type of loans the company focuses on. If not, he could lose almost 20 percent of his business, he said.

Flat Branch Mortgage in Columbia has benefited from the shift to government loans, such as the Federal Housing Authority and Veterans Affair loans, because the company already focused on them, company president Jim Yankee said.

“As the other lenders are pulling back, the government loans are pushing forward,” Yankee said. “All those lenders have gotten a lot more conservative. The government deals are better.”

Loans from the Federal Housing Authority can offer up to 97 percent financing, but the borrower must couple the housing authority loan with a grant program, such as the Missouri Housing Development Commission or AmeriDream. The interest rate is also lower than 100 percent-financed conventional loans.

“It’s really just a different strategy and just a different investor with separate guidelines that are a little bit more stringent than conventional lending,” Peery said.

Banks haven’t remained unscathed as a result of foreclosures, either.

Rick Poe, senior vice president of Boone County National Bank, attends courthouse sales for the bank when it forecloses on a property. The bank inspects the house, he said, then determines a value.

“It’s now a non-earning asset for the bank,” Poe said.

The bank may pay for possible repairs to the home, such as a paint job or new carpet installation, Poe said, or they’ll rent a Dumpster and start tossing items left at the home.

Realtor Dennis Lynch said he’s seen a foreclosed home where the previous owner snatched items such as the kitchen sink and living room carpet.

The condition of foreclosed homes that banks own, Harmon said, is usually somewhat worse because the house has been left vacant.

Recently, Harmon inspected a bank-owned foreclosed home at 1509 S. Azalea St. off Stadium Boulevard. The foreclosed home was the first of 16 on Harmon’s list to inspect that Monday afternoon.

“I don’t see it slowing down anytime soon,” he said of foreclosures.

Upon arrival, the signs of abandonment stand out: Vines crawled up the side of the faded yellow wood siding of the garage. “This vine needs to go away,” Harmon said.

Water filled deep tire trenches on the west edge of the home. Siding on the north edge of the home was destroyed because of the water damage.

With his kit – a pair of plastic yellow gloves, a flashlight and a digital camera – Harmon steps inside the home.

“I smell pet,” he says. “Ugh.”

Large, brown spots caked the living room carpet.

Expandafoam, a squishy, yellow putty-like substance, plugs two holes in the ceiling as Harmon identifies black mold near one of them. In the kitchen, the smell of tiny, black mouse droppings covering the floor almost drown out the dog smell.

Upstairs, the news and the smell are not as bad. The bank has removed the carpet – too bad to repair.

A tree has sprouted in between two wooden boards of the outside deck.

“This one’s really been cleared out as well as the bank can do,” Harmon said. “All they do is clean the trash out and get it ready to sell.”

He estimates repair costs will run about $25,000, an “easy flip.”

Some say people who have lost their homes enter the rental market; others have heard of homeowners leaving the state to live with family or friends.

Numerous attempts to contact people who have been foreclosed on in Boone County have ended in doors being shut, phone calls ending in the operator’s voice or an unwillingness to comment.

Shelley and Ken Lawlor, who live with a baby boy in north Columbia at 1608 Tidewater Drive, saw two of their neighbors lose their homes to foreclosures in the past year.

“Everyone’s a little worried about their homes,” Shelley Lawlor said. Ken Lawlor is in year three of a five-year residency program with the University of Missouri, meaning the family won’t be looking to move for at least two years. But still, Shelley said, they have their concerns about selling their home.

Boone County Assessor Tom Schauwecker said the greatest impact of Boone County’s foreclosures will fall on new or future home buyers because of the tightening loan market. People in the middle of a 30-year fixed mortgage shouldn’t be affected, he said, as long as they’re not looking to sell soon.

Whether you ask bankers or realtors, the advice for anyone worried about keeping up on their mortgage payments is the same: Talk to your lender immediately.

As for solutions, U.S. Sen. Christopher “Kit” Bond, R-Mo., has introduced the Security Against Foreclosure and Education Act, which would allow state housing finance agencies to issue $10 billion in tax-exempt bonds, helping refinance subprime mortgages.

In late March, Bond met in Columbia with a contingent of city officials, realtors and bankers to discuss foreclosures.

Fifth Ward Councilwoman Laura Nauser, who was among those who visited with Bond, thinks the city should provide limited help with the upkeep of foreclosed properties to ensure that surrounding property values don’t decline.

“I hope the city kind of takes a backseat role,” Nauser said. “I really think the lenders and borrowers need to work this out themselves. I just don’t know if taxpayer dollars should be bailing out poor decisions.”

Third Ward Councilman Karl Skala, who was also on hand for Bond’s visit, suspects the foreclosure situation “will get worse before it gets better, so the time to act is now.”

While Congress discusses a national plan to help the mortgage market and those who have faced foreclosure, Skala sees the merits of a citywide discussion.

“I think of primary importance here is to educate the public on what kind of contracts they’re getting into,” Skala said. “It’s crucial for local communities to carry on this discussion.”


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