COLUMBIA — Real estate foreclosures in Boone County this year have already set a record, following a trend that has gripped the national housing market.
A total of 163 foreclosures were recorded through Sept. 14 in Boone County, 13 percent over last year’s total and topping the previous record of 150 set in 2003, according to information provided by the Boone County Recorder’s Office.
Despite the record high, Mary Wilkerson, vice president of marketing at Boone County National Bank, said the county is doing “significantly better” than other similar counties the country.
According to the Recorder’s Office, the number of foreclosure filings dropped from 35 in July to 16 in August, which made last month’s foreclosure rate one filing per 4,214 housing units in the county.
By contrast, the foreclosure rate nationally was one filing per 475 housing units in August. For Missouri, it was one per 793 units. The housing unit figures were reported in the most recent U.S. Census survey.
Recent foreclosure levels have been correlated to the high number of adjustable-rate mortgages (ARMs) offered to home buyers. ARMs allowed lenders to entice buyers to borrow with artificially low interest rates that would later increase, sometimes to unaffordable levels.
Dale Whitman, real estate finance expert and professor at the MU School of Law, thinks the ARMs weren’t responsible for the market crisis. Rather, it was the “irresponsible” way they were handled, with “teaser rates” placed below already-low mortgage rates to attract less-qualified borrowers.
“Lenders made many loans without much regard to whether borrowers would be able to repay them, assuming that increases in housing prices would inflate borrowers out of their financial troubles,” Whitman said.
“Borrowers were willing to accept (adjustable-rate) loans... even when they should have known they would probably be unable to make the higher payments.”
Wilkerson said the county’s lower foreclosure rate is due to favorable demographics.
“We are a highly educated community in general, and we are situated in an area that is not as densely rural or urban. This balance between the two helps us in this regard,” she said.
With both homeowners and lenders currently suffering the effects of a deflated housing market, new borrowers must be more careful than ever to avoid defaulting on their loans, according to the National Association of Foreclosure Prevention Professionals.
The association provides a list of agencies that offer guidelines for responsible home purchases and urges borrowers to meet with a financial counselor before taking out a loan.
Borrowers in Boone County who may be worried about meeting loan payments should talk to a lender immediately, Wilkerson said. Local banks often can find solutions for customers dealing with tough financial situations.
“No one wants to see anyone lose their home if they don’t have to,” she said.
Last month, the U.S. Senate passed a bill allocating $200 million for nonprofit groups that assist borrowers in danger of foreclosure.
A bill is currently being discussed in the House addressing programs by the Federal Housing Administration, which seeks to stabilize the housing market, mainly by providing mortgage insurance.
Whitman said there is talk among politicians of authorizing the FHA to insure loans to those in default on their present loans.
THE FORECLOSURE PROCESS
A foreclosure occurs when a property owner cannot make payments on a loan, usually leading to seizure of the property.
The steps in a typical process are:
After three to six months of missed payments, a lender orders a trustee to record a Notice of Default at the County Recorder’s Office. This puts the borrower on notice that he or she is facing foreclosure and begins a reinstatement period that will typically run until five days before a home is auctioned.
If the default isn’t corrected within three months, a foreclosure sale date is established. The homeowner will receive a Notice of Sale that will also be registered at the Recorder’s Office, posted on the property and published in a daily newspaper for three weeks.
A Trustee Sale is held on a date stated in the Notice of Sale, usually on the front step of a county courthouse. At the sale, the property is publicly auctioned to the highest bidder, who must pay the high bid price in cash.
After the payment has been made, the winner receives the trustee’s deed to the property.
Adjustable-rate mortgage (ARM): A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index. This is usually subject to rate caps and other considerations.
Foreclosure: A situation in which a homeowner is unable to make principal and/or interest payments on a mortgage. The lender — a bank or building society, for example — can seize and sell the property as stipulated in the terms of the mortgage contract.
Notice of Default: A notification given to a borrower stating payments have not been made by a predetermined deadline. It dictates that if the money owed — plus an additional legal fee — is not paid in a given time, the lender may choose to foreclose and auction the borrower’s property. Others who may be affected by a foreclosure may also receive a copy.
Real Estate Owned: This term is frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of foreclosure. It refers to property owned by a lender — usually a bank — after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: The minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale.
Subprime Loan: A loan is offered at a rate above prime to individuals who do not qualify for prime rate loans.
Trust Deed: A common way to structure real estate purchases, where the title to a property is held in trust until the loan for the property is paid.