By Brenda Showalter, The Republic
bshowalter@therepublic.om
Dreams of home ownership came true for many low- to middle-income Americans in recent years, even though they had low credit scores and were at high risk for defaulting on their loans.
Many in this subprime market found themselves financially in over their heads and lost their homes through foreclosure.
Record high
A report released last week by Mortgage Bankers Association showed the number of homeowners receiving foreclosure notices hit a record high in the second quarter.
This was the third consecutive quarter the figure set an all-time high, and some fear the worst is yet to come.
Recent reports showed the number of homeowners delinquent on mortgage payments but not yet in foreclosure is steadily climbing.
"The nation is bracing for an emerging spike in foreclosures, which will impale Indiana and its neighbors," said John Tatom, director of research at Networks Financial Institute at Indiana State University.
Tatom spoke recently at a foreclosure forum in Indianapolis that addressed the causes, consequences and remedies.
Indiana ranks second in the nation for the number of homes in foreclosure and fifth for delinquent mortgages.
The state's foreclosure rate of 2.98 percent was more than double the national rate of 1.28 percent in the first quarter of this year.
Recent changes in lending practices have eliminated most of the subprime loans, but many of those who received them in 2004 to 2006 are predicted to default in the next year or so.
Lisa Piercefield, counselor at Momentive Consumer Credit Counseling in Columbus, said those at risk for defaulting on a mortgage normally do so in the first year.
Many local families facing foreclosure have sought financial counseling through Momentive.
"In the last month alone, I had 16 appointments related to housing delinquencies," Piercefield said.
"It was probably 50 percent of my appointments last month. It's been a steady increase."
Local numbers
Bartholomew County's number of home foreclosures has increased from 230 in 2003 to 307 in 2006 - an increase of more than 33 percent - according to cases filed in Bartholomew County courts.
As of Sept. 6, the county has had 186 cases in 2007.
Another indicator of the numbers is foreclosed homes sold at sales through the Bartholomew County Sheriff's Department.
The sales include banks trying to sell homes quickly to mitigate their losses, but include minimum bids.
Numbers have been fairly steady in the last three years, ranging from 218 to 237, but already this year 213 have been conducted.
Sheriff Mark Gorbett said the pace has slowed in the last three months, averaging 17 sales a month, compared to 21 a month during the first part of 2007.
The next sale is scheduled for 10 a.m. Tuesday at the Sheriff's Department, where 13 homes are listed for sale.
An analysis conducted by Seth Payton of the Center for Urban Policy and the Environment at IUPUI showed Bartholomew County had a concentration of foreclosures from 2002 to 2005 higher than all of its neighboring counties, except Johnson and Shelby.
The largest share of foreclosures in Indiana is in Marion County and other high-population areas, including the extreme northwest and in the Evansville and Fort Wayne areas.
Although foreclosures affected all counties and a cross section of neighborhoods, many foreclosures were on homes in the $80,000 to $120,000 range.
At highest risk were homeowners who spend more than 30 percent of their income on mortgage costs, Payton said.
Looking for answers
Experts say one of the best ways to stop the tide of foreclosures is to create more public awareness and offer education and counseling to current and future homeowners.
"The best action is preventative measures, to get the word out," said Desiree Hatcher of the Federal Reserve Bank of Chicago, who spoke at the foreclosure forum.
"Homeowners need to get as much information up front as possible."
She added that homebuyers need to understand all the terms of their loans and all of the costs associated with home ownership, including property taxes, insurance and ongoing maintenance.
"It doesn't make sense to put someone in a home today and lose it tomorrow," Hatcher said.
State and national legislators are looking at possible solutions, including assisting some subprime borrowers refinance their loans through the Federal Housing Administration.
Homeowners also can find assistance locally with Momentive that offers free counseling for those at risk of losing their homes.
Statewide, a Foreclosure Prevention Network has been formed and a toll-free hotline established at 866-722-9248.
Lenders also are changing some of their practices and increasing standards for buyers to qualify for mortgages.
"Some of the products we used to be able to offer have been suspended," said Bill McKale, vice president and mortgage underwriting manager for Irwin Union.
These were not for subprime borrowers, McKale said, but for "lesser quality borrowers."
National news about the subprime collapse and housing slump has discouraged some potential home buyers, but McKale said loans are available and rates are good for qualified buyers.
"We're still making loans," he said. "My suggestion to the general public is to contact a lender and find out what they can do."