In April of last year, the owner of a $35,000 bungalow on the 800 block of Seventh Street lost her home. She didn’t keep up with the payments, and the mortgage company foreclosed on the loan.
East of town a month earlier, in the El Chaparral subdivision with basketball hoops in the driveways and lampposts in the front yards, a couple lost their $117,000 home. They, too, hadn’t kept up with the payments.
South of town in Bluff Creek Estates, where immaculate lawns give way to immaculate houses, the owner of a $353,000 spread with gabled roofs and picture windows lost her home to foreclosure as well.
Over the past several years, the number of home foreclosures in Boone County has nearly quadrupled. In 1997, banks and other lenders foreclosed on 38 homes, according to county records. In 2003, lenders foreclosed on 151, nearly four times as many. In one year alone, from 2002 to 2003, foreclosures rose 53 percent.
A host of factors likely contribute to the rising numbers, but two reasons seem to emerge above the rest: More people are borrowing themselves into trouble, and at least in some cases banks and mortgage companies are helping them do it.
Consider the following trends from 1997 to 2003:
- The number of homes in Boone County rose, but at a rate eclipsed by the rate of increase in foreclosures, according to county records.
- The price of homes in the Columbia area increased, but wage increases nearly kept pace, according to data from the state and the Columbia Board of Realtors.
- When unemployment rose, the number of foreclosures rose. When unemployment dropped, the number of foreclosures rose. When unemployment stayed the same, the number of foreclosures rose.
- The amount of mortgage lending in the Columbia area for home buying, refinancing, home improvements and the like increased by more than 100 percent, according to federal banking records. The number of new homes built, according to county records, increased 20 percent.
“There’s just a lot more people getting loans who don’t have the means or the discipline to make the payments,” said Karen Brown, manager of Boone Central Title Co. She described the lending market as a double-edged sword. People who traditionally may have been unable to get a mortgage can get one, but once they get financing, they may struggle with making the payments.
“We’ve noticed that we’re doing a lot more (title) searches leading up to foreclosures,” she said.
A foreclosure occurs when a borrower repeatedly fails to make the mortgage payments. The lender puts the property up for auction to repay the loan, typically a proceeding that occurs on the steps of the county courthouse. Often the bank or mortgage company is the highest or only bidder. Afterward, the lender sells the home to recoup its loss.
Valerie Coffin, a research analyst with the Association of Community Organizations for Reform Now, said the rise in foreclosures is attributable to more than a lack of borrower self-discipline. Problems also lie in the structure of the loans she said, including hefty fees and interest rates, loans made without regard to the borrower’s ability to repay and loans refinanced repeatedly over a short time without any benefit for the borrower.
These elements used by some banks and mortgage companies constitute what is known as “predatory lending,” and Coffin said the practice is a big problem. In its latest move to combat the practice, Coffin’s association filed a lawsuit in June in San Francisco County Superior Court against Wells Fargo, charging the banking company with a host of unfair and deceptive lending practices.
“Of course, it would be better if people made more money and they could have more money and housing prices weren’t so high,” Coffin said, “but those are just pieces of the equation. You have to look at what’s happening with the actual loans as well.”
A January report by the General Accountability (Office, Congress’ investigative arm, said a host of factors suggest the practice of predatory lending is escalating. In the past five years, a number of major settlements have occurred from government enforcement actions and private lawsuits that accused lenders nationwide of unfair practices. Legal services agencies have reported seeing a growing number of people, particularly the elderly and minorities, who are in danger of losing their homes as a result of predatory lending practices.
In addition, the office’s report said, the rate of foreclosures of “subprime” loans has far exceeded the rate of their loan originations. Subprime loans serve borrowers with limited incomes or poor or no credit histories, but often at higher interest rates.
Terry Coffelt, an executive vice president with First National Bank and Trust in Columbia, said he attributes the rise in foreclosures in Boone County to a combination of factors, particularly the proliferation of subprime lenders in the area and homeowners with less equity in their homes.
These subprime lenders, such as Mortgage Express, Freedom Mortgage Corp. and Citifinancial Services, are getting busier in Boone County. In 1997, according to county records and the earliest federal banking data available online, subprime lenders accounted for about 7 percent of the loans but less than 1 percent of the foreclosures in the Columbia area. In 2002, they accounted for about 3 percent of the loans but about 16 percent of the foreclosures. A sample of adjustable rate loans that later led to foreclosures in 2003 showed rates that ranged from a maximum of 11.75 percent to 18.95 percent. The loans were originated when average 30-year-fixed-rate mortgages were around 7.5 percent.
Banks and mortgage companies defend the practice as the cost of doing business. Borrowers with poor credit and who are at greater risk of defaulting on their loans pay higher interest rates.
“Because they are riskier, then you would expect an increase in foreclosures,” said Doug Duncan, a senior vice president and chief economist with the Mortgage Bankers Association.
One legislator in particular has attempted to eliminate predatory lending. State Sen. Wayne Goode, D-St. Louis, introduced legislation in 2002, 2003 and 2004 to curb the practice. Each year, the bill never made it past committee.
The legislation would have banned prepayment penalties associated with high-cost home loans, prohibited loan flipping and required loans to be based on a borrower’s ability to pay rather than the equity in his or her home, among other things. But it met resistance by the mortgage industry, which said it found the legislation to be too restrictive against legitimate lenders and ineffective against abusive lenders.
Meanwhile, foreclosures in Boone County continue to mount. In the first half of this year, 52 homes were foreclosed upon. Although the pace is slower than in 2003, it’s still higher than any other year in the past decade.