MORTGAGE
FORECLOSURES: Behind the Numbers
Review
Special Report
by Mike
Thompson
Probably
your home is not among the 1,073 that have
faced mortgage foreclosure in Saginaw County during
the past 12 months.
Still, the home loan
default crisis may affect you.
Property values
already are starting to fall in most neighborhoods.
When the assessment process finally catches up with
the market place, local tax bases may shrink and
basic government services may suffer.
Furthermore, if you
wish to sell your home, you will have a tougher
time. And even if you make a sale, it's doubtful you
will get full value.
"This is scary," says
Mark Neumeier, longtime director of
Neighborhood Renewal Services, which strives
to promote home ownership with a blend of funds from
the federal government and private financial
institutions.
"It's a problem that
isn't going to go away any time soon, it's a problem
that will affect entire communities, and to tell the
truth there really are no good solutions."
Neumeier's research indicates that Saginaw County's
foreclosure total is more than double the number as
recently as two years ago, and a whopping 10 times
higher than during the middle 1990s.
The mortgage crisis
is nationwide, with forecasts of up to 2 million
foreclosures in the year to come.
Some analysts say
today's housing market suddenly has become the worst
since the Great Depression. The Rev. Jesse
Jackson echoed those thoughts in a highly
publicized recent Michigan tour that included
Saginaw.
President Bush is
urging lenders to show teamwork in compromising on
mortgage terms, while Democrats are taking a step
beyond by calling for direct infusions of federal
aid.
Low Income,
High Income
Troubles are most severe in two types of areas. The
first area is in distressed communities such as
Saginaw, in which people are struggling with
declining incomes and overextended credit. The
second area, ironically enough, is in upper-scale
developments in places such as Florida and Arizona
where speculators face a stagnant market.
Neumeier is capable
of giving a full hour's dissertation on the causes,
but for our purposes he sums up in a nutshell:
1) Many
people, not just those with low-incomes, have become
submerged in debt during the past three decades.
2) Lenders,
and in many cases brokers, began offering
alternative forms of 'subprime' home mortgages
during the 1980s and all the way until a year ago.
Terms were so flexible that almost anyone could
qualify, especially with adjustable rates or balloon
payments. Some loans were so loose that buyers could
pay interest only for the first few years. The
problem was that interest rates usually were in
double digits.
3) Suddenly in
2007 it's time to pay the piper, so to speak, and
many buyers are finding that they are in over their
heads. Meanwhile, lenders are tightening their
standards and prices are nose-diving. If somebody
wants to escape foreclosure by selling their house,
either they can't find a buyer and/or they no longer
have the equity to make an arrangement.
Neumeier's numbers
show how the problem is widespread. The city of
Saginaw leads the way during the past year with
492 foreclosures. However, there were 125
in Saginaw Township, 44 in Thomas Township
and 25 in Tittabawassee Township.
"We can see the
problem simply by observing that there are more
properties that are not kept up," says Tittabawassee
Manager Brian Kischnick. "People walk away
and the grass grows high."
Saginaw Township
also illustrates how the mortgage crisis goes beyond
low-income families.
Sources have said that up to nine families in the
Sawmill development alone have faced
foreclosure.
"This will not have
any immediate impact on our tax base, but what
saddens me is the impact on a lot of good people,"
says Township Manager Ron Lee.
"A mortgage broker
may encourage a family to buy all the house they
can, which makes sense. But then they decide to have
children, and one drops out of the workplace, and
all of a sudden their lifestyle has to change. It
can be tough. And then people will feel lower in
spirit, and it will cut into their volunteering for
different activities in the township.
"Foreclosures alone
won't bring down the economy, but there are the
spin-offs. For example, forecasts are for a slow
season of holiday shopping. All of this is related."
'Giveaways'
in the City
Neumeier says an example of the home mortgage
crisis is a three-bedroom property with a two-car
garage that Neighborhood Renewal owns at 1917 North
Oakley on the city's near West Side.
Buyers had paid 13
years on a 20-year mortgage, but then faced
foreclosure with only $15,500 still to pay.
The property was auctioned at that amount, but no
bidders came forward.
Saginaw city
assessors have set the State Equalized Value
at $31,435, which means in theory that the
home should sell at twice that amount, or
$62,870.
However, the highest offer that Neighborhood
Renewal has received is $11,600.
Neumeier has dropped
the posted sales price to $25,000, advertising it as
"priced below SEV." In other words, the home is
priced for less than half of the official market
value.
"That's hard to
imagine, but it shows how bad things have become,
and also how so many assessments are out of line,"
he says.
He predicts that
sooner or later, communities will face 'assessment
shock' when they are forced to lower assessments and
reduce their tax bases.
He acknowledges that
Michigan's 13-year-old Proposal A will
provide a buffer. Proposal A has limited 'taxable
value' increases to the rate of inflation.
Therefore, taxable value for many homes is far lower
than State Equalized Value. Taxable value will
continue to rise annually with inflation, allowing
communities to maintain their tax bases.
But at some point,
especially in lower-income communities, taxable
value will catch up with State Equalized Value.
That's when the budget crunches will take root.
A Chance for
Tax Justice
The Saginaw Board of Realtors reports that
the average home sale price declined to $81,000
last September, down from $98,400 in
September 2006. This is an 18 percent drop.
Why haven't
assessments gone down at the same time?
The reason is that
measurement of assessment factors lags behind the
sales market, says Jim Totten, Saginaw County
equalization director.
For example, 2007
assessments were based on sales data measured
from April 2004 through March 2006.
"We're basically a
year behind the market," Totten says. "When we
started with April of 2004 for this current year's
assessments, we were catching the end of the price
increase period. The decline will begin to be
reflected with 2008 assessments in many
communities."
However, Totten
shared an August 2007 memo from the
Michigan Department of Treasury's State Tax Division,
which outlines a one-year option for any of the
county's 30 local governing units to make quicker
adjustments.
The state will allow
studies measuring the most recent single year,
rather than two years, based on a number of distress
factors.
Two main scenarios are a reduced number of market
sales without a reduction in the number of listings,
and/or an increase in the number of foreclosure
sales.
Furthermore, the
study period would be moved ahead an added six
months. A community shifting to a one-year window
for 2008 would base assessments on sales data from
October 2006 through September 2007,
rather than from April 2005 to March 2007.
Numbers from the
one-year period would more accurately reflect the
steep price declines, and therefore would result in
general with lower assessments.
Totten says he
already has advised the City of Saginaw to
switch to the one-year study period, and he is
consulting with other communities. No matter where
you live, you may want to contact your local
officials regarding this option.
Lower assessments
would not cause Saginaw to lose money for it's
regular budget, which is under a tax freeze, but
revenue could shrink for millages dedicated to
public safety and to trash pickup.
City Manager
Darnell Earley says he was not aware of details
of the one-year option, but that he will consider
the idea.
"We will look at all
aspects, and do what is proper so that our
assessments reflect parity with any loss of housing
values," he says.
Saginaw Township's
Ron Lee says he also wishes to learn more
about the one-year option. He notes that when a home
is sold under Proposal A, the taxable value rises to
the State Equalized Value. This discourages home
sales.
"When Proposal A was
adopted in1994, I don't think anybody expected that
the economy would go in the tank in the way as it
has done," Lee says.
Meanwhile, Neumeier
says that amid all the troubles, he still sees a
potential bright spot.
"The Saginaw area
continues to offer some of the most affordable
housing in the nation," Neumeier says.
"Let's use our
affordable housing to attract new residents and new
employers who are looking to relocate.'
"They didn't
have to sign"
Reaction to the foreclosure outbreak shows a typical
split in public opinion. Conservatives generally
state that nobody forced buyers to sign up for bad
loans with unreasonable terms. Liberals place blame
with so-called predatory lenders, or brokers, who
have preyed upon good citizens who simply desire to
share the American Dream of home ownership.
Eight years ago,
Neumeier helped organize a coalition of reputable
lenders. They include Citizens Bank, Chase,
Chemical, Independent, National City, LaSalle, TCF
and Fifth Third. They helped Neighborhood
Renewal Services form a mortgage loan pool. At the
same time, they conducted workshops on predatory
lending with hopes of steering buyers away from the
mortgage pitfalls that now have exploded to the
surface.
The name of the
group is CRA Bankers Forum. "CRA" refers to
the Community Investment Act of 1971, a federal
initiative to combat discrimination that was known
as redlining.
Group Chairman
Robert Burgess, a Chemical Bank
executive, says the rash for foreclosures is a major
challenge.
"Basically, what we
have tried to do is promote financial literacy
through workshops, focusing on a Saginaw
perspective," Burgess says.
He cites the Bankers
Forum's mission and vision statements, which state
in part: "This organization will strive to promote
and combat the issues related to affordable housing,
creating and displaying a unified front as,
collectively, we attempt to provide financial
support to further the success of our communities."
Success stories
exist, such as the Cathedral District surrounding
St. Mary's Hospital and the Heritage Square area
near the Courthouse, but many other neighborhoods
continue to crumble.
Neumeier points to a
chart of recorded mortgages in Saginaw County. The
total was about 1,000 in 1982. It soared
beyond 20,000 just four years ago. On the
surface this may seem to illustrate progress and
prosperity, but in reality it demonstrates that
thousands of families have found a need to enter
second mortgages or high-risk first mortgages, many
with unfavorable rules.
Jesse Jackson
found a point of irony. During the era of redlining,
certain people were denied loans. During the era of
predatory lending, the same people have received bad
loans. Which is worse?
As far as possible
solutions, Gov. Jennifer Granholm through the
Michigan State Housing Development Authority has
announced plans to replace subprime loans with
fixed-rate financing, but legislative approval is
required and Neumeier says most owners would remain
ineligible.
"What can you
do if someone is a full year behind in their
mortgage and still in no position to pay?" Neumeier
asked. "It's a tragedy, but you can't just give them
the house."
Democrats and
Republicans agree on one point. Both are pushing for
stricter punishments against predatory lenders.
Missing The
Fine Print
Mary McMath conducts housing counseling for
the Saginaw County CAC, short for Community
Action Committee, in a project entitled Links
to Home Ownership. Funds come from the state
housing authority.
"Normally when people
go to a closing to buy a house, they are all
excited," McMath says. "Then they have the papers
put in front of them, and some don't understand, and
they sign. They end up paying 15 percent interest,
I've even heard of 24 percent. But think of it: Most
all of us have signed papers in which we didn't read
all of the fine print."
Beyond the fine
print, she speaks of unexpected financial
circumstances. A person may lose a job. A person may
take ill, or have a loved one hospitalized.
"I've seen all sorts
of situations," she says. "If somebody purchased
several years ago, how would they have known that
their Consumers Energy bills or their health
insurance bills would have such big increases?"
Her counseling goes
beyond short chitchats with clients. She conducts
workshops that last all day. Topics include
budgeting, various forms of mortgage financing, debt
ratios, foreclosure prevention, inspections,
settlement agreements and purchase agreements.
McMath offers some
tips:
1) If your
credit rating is low, show some patience and take a
few years to clean it up before you try to buy. You
will get a much better financing rate.
2) Do not
ignore correspondence from your mortgage company.
This isn't another credit card company writing and
calling; it's your mortgage. Lenders also lose money
on foreclosures, and they will want to work out a
deal.
3) If you
must enter into loss mitigation, go beyond a loan
officer and ask to speak with a higher-ranking
customer service representative.
4) Also if you
enter mitigation, make clear that you are working
with a housing counselor.
"I was at a
conference, and another counselor said she wished
that home-buying advice was part of the high school
economics curriculum. That's something to think
about," McMath says.
"People don't have to
stop buying homes. They just need some education.
It's the same as with buying a car. Be careful what
you sign."