By MARGO BODE, Banner Graphic Staff Writer
America's mortgage crisis has hit home. Across the country, 1.6 million borrowers defaulted on their mortgages last year. Some of them are here in Putnam County. Houses that once were homes to families with kids and dogs and gerbils, now stand empty with notices stuck to the windows.
Since the beginning of 2008, 32 homes have been sold in this area. According to Nancy Fogle, a local real estate agent, 4 percent of them had been foreclosed. One in particular is a beautiful place in the woods just outside of Greencastle. It has five bedrooms, four baths, plenty of living space and a great view. It once sold for $230,000. After foreclosure, it sold for $119,900, a bargain for somebody. But that drop in price could affect the appraised value of other homes in the same neighborhood.
Lending policies throughout the county vary. Greencastle's National City Bank, for example, has had no recent foreclosures. Charles Green, a mortgage originator there, explained, "People with sub-prime loans are just one paycheck away from disaster." Even the rising price of gas for a long commute might be enough to put a house payment out of reach.
Sub-prime loans are risky. They go to people who have a credit history that might include little or no savings, bankruptcy, bad debts, or low income. Such loans can prove to be expensive. Often a cheap introductory interest rate quickly can jump two or three point. In the past, when house prices were rising, borrowers in trouble could sell and even turn a profit. Now the market has slowed and the result looks like disaster. Sub-prime adjustable rate loans represented 6.8 percent of America's outstanding mortgages in 2007, but they accounted for 43 percent of foreclosures.
According to a local attorney, "easy pay" mortgages have no margin for error. People have no investment, no equity in their homes so when trouble hits, they have no bargaining position to get them through a hard time.
With so many home owners unable to make their payments, America's lending institutions are out billions of dollars, and the entire economy is in a nosedive. Looking for a way out, the federal government has been putting pressure on lenders to come up with ways to salvage the situation. Last May, a group of major banks and loan servicers promised to "create a permanent solution," if possible, for subprime borrowers.
"Hope Now", another program, came along next with a promise to freeze interest rates on many subprime loans starting this year. This week "Project Lifeline" made promises to delay foreclosure proceedings for 30 days while borrowers try to negotiate better deals. No results of any of these efforts have been reported, but people in Putnam County keep losing their homes.
The process begins when a homeowner receives 30 days notice to foreclose. Next, the lender asks the court for a judgment against the owner to take the land in payment. The final act is a sheriff's sale where the house is sold at auction. Sheriff's sales are announced in the BannerGraphic and posted on a bulletin board in the lobby of the sheriff's office. On Valentine's Day, there were 34 postings on that board describing houses to be auctioned in the next month.