By Brenda Showalter, The Republic
bshowalter@therepublic.com
INDIANAPOLIS - Consumer counselors, federal banking officials and others attending a forum Tuesday used the terms "crisis" and "epidemic" to describe the home foreclosure situation in Indiana.
The state ranks second in the nation for the number of homes in foreclosure and fifth for delinquent mortgages.
The number of foreclosures in Bartholomew County has increased 33 percent since 2003 with 307 foreclosures filed in 2006.
About 350 people attended the forum, presented by Networks Financial Institute and Federal Reserve Bank of Chicago, to look at the causes, consequences and possible remedies.
The experts' assessment of the situation was bleak and expected to get worse.
"What you don't see is the emerging foreclosure problem," said John Tatom, director of research for Networks Financial Institute.
Tatom predicted a further spike in foreclosures due to an "explosion of subprime loans" from 2004 to 2006. Subprime loans are to individuals with low credit scores and relatively high expected default and foreclosure rates, Tatom explained.
Many subprime loans have high fixed rates or adjustable rates that start low and balloon after a few years.
"The subprime borrower really was a sucker for the (adjustable rate mortgage)," Tatom said.
Subprime mortgages accounted for $3 billion in mortgages in the U.S. in 1988 and $529 billion in 2004.
While subprime mortgages accounted for 14.8 percent of all mortgages in the first quarter of 2007, they represented 47.5 percent of homes in foreclosure.
U.S. in trouble
Tatom said the home foreclosure epidemic is the No. 1 risk facing the country's economy.
"It is the dominant economic news right now," added John Weicher of the Hudson Institute and former chief economist for the U.S. Department of Housing and Urban Development.
The fallout has included a change in the mortgage lending industry, which has significantly reduced the number of subprime loans.
Mortgage-seekers are finding more rigorous requirements for credit scores and down payments.
The number of homes on the market has increased and new construction has decreased, said Rick Wajda, chief executive officer for the Indiana Builders Association.
Others said the current increases in property taxes also will affect the market, although the complete picture is unknown.
Weicher said part of the problem stems from making home ownership too easy.
The positive side was that home ownership is at nearly an all-time high, but too many of those homeowners got in over their heads.
Education key
Forum presenters said one of the remedies to the foreclosure problem is education.
Secretary of State Todd Rokita said more effort must be placed on teaching financial literacy, beginning with children in schools to those buying their first home.
Rokita said he was concerned that the nation has a negative savings rate and many do not understand the commitment of home ownership, including those who get a mortgage with no down payment.
Desiree Hatcher of the Federal Reserve Bank in Chicago said home buyers need to ask more questions than what their down payment and monthly payments will be.
They also need to understand escrow, insurance, property taxes and fixed and adjustable interest rates, Hatcher said.
Speakers said homeowners who find themselves unable to make their mortgage payments need to ask for help before the problem overwhelms them.
Indiana has formed a Mortgage Fraud and Foreclosure Prevention Task Force that is seeking solutions.