September 13, 2006
Foreclosures soar
35,000 Metro Detroiters lose homes so far this year
Dorothy Bourdet / The Detroit News
Metro Detroit homeowners are skidding into foreclosure at nearly three times the rate as they were last year as a slumping economy, falling home values and risky mortgages leave more household budgets in the red.
From the manors of Bloomfield Hills to the bungalows in south Warren, Metro Detroiters in every walk of life are having trouble making their house payments and fending off the repo man.
According to figures to be released today by RealtyTrac, foreclosures shot up 137 percent, from 14,789 to 35,041, in Wayne, Oakland, Macomb and Livingston counties from January through August, compared to the same period last year.
Wayne County, which has historically higher default rates, and Macomb County saw triple-digit percentage increases. Oakland County fared a bit better with a still-hefty 64 percent increase and Livingston County saw a 37 percent jump, said RealtyTrac, a real estate firm that tracks foreclosed properties.
In August, Michigan's foreclosure rate was sixth in the nation, up from 10th in the same month in 2005. Nationally, 115,292 properties entered some stage of foreclosure during the month, a 24 percent increase from July and a 53 percent jump from a year ago.
For 48-year-old Royal Oak resident John, who asked that his last name not be used, the financial threads holding his life together started unraveling after he lost his job in automotive manufacturing three years ago.
"Unemployment doesn't last too long and if you've got a mortgage, you don't get enough to pay a mortgage. So I struggled -- big time," he said.
"Big time" meant running up $28,000 in high-interest credit cards to help pay bills, including the mortgage. But that strategy only lasted so long. About a year ago, John just couldn't scrape enough together for his $1,375 per month mortgage payment and began defaulting.
On the verge of foreclosure, he called a bankruptcy attorney, who wouldn't take him as a client.
"He said, 'Aw, sell your house; I don't want you.' When you can't file for bankruptcy, you're thinking, 'Oh my God what are they going to do to me -- throw me in jail?' "
John is among the thousands of laid off or underemployed Michigan residents who are having trouble making ends meet. In July, 356,000 Michigan residents were without work, according to state figures.
Detroit automakers and suppliers are cutting thousands of jobs as part of a massive industry restructuring.
"We're finding it's hitting every income bracket; it's hitting everyone differently," said Dorothy Guzek, a financial counselor with GreenPath Debt Solutions in Troy.
Increasingly "creative" lending practices are also contributing to the spike, say Realtors, financial experts and bankruptcy attorneys.
Adjustable rate mortgages that require little or nothing down can be tempting up front, but often sting in the end as monthly payments rise along with interest rates. Loans that waive a down payment leave homeowners with little or no equity and few choices when hard times hit.
Hard to recoup home values
Mortgage defaults had been relatively uncommon in the United States and in Michigan in recent years, smothered out by a nationwide housing boom. In fact, foreclosure rates were suppressed by rising home values and low interest rates. Homeowners in trouble could usually sell their home or refinance to safety.
Now, with falling home values and the housing supply far outweighing demand, people are finding it hard to sell for what they owe on the property.
"It is tougher for the average person to sell their house and recoup their money if they owe 100 percent of the value of their home or even if they got 90 percent mortgage or 80 percent mortgage. Houses aren't selling," Guzek said.
Cheaper houses on market
On Tuesday morning at an Oakland County foreclosure auction, Matthew Chodak of the Oakland County Sheriff's Department read off 103 properties on the auction block, including a $2.5 million home in Oakland Township, an $84,000 home in Hazel Park and many more in between.
Those foreclosures hit the local market hard, said Joel Root, a real estate consultant with RE/MAX First in Clinton Township.
"You're going to put more lower-priced homes on the market, so that's going to hurt the whole market," Root said. "It's a depressed area already and now we're adding homes to the market that people otherwise would not have wanted to sell."
That doesn't help lenders who also are trying to unload homes as they lose $30,000 or more in the foreclosure process.
"People don't realize it but the average investor loses $40 a day" from the day a homeowner defaults, said David Trott, whose law firm represents banks and mortgage brokers.
"It's an economic nightmare for them and investors are looking at Michigan with a great deal of concern because not only are they getting a lot of foreclosures, but they're having a hard time reselling," he said. "To say that our clients are concerned is probably an understatement."
Predatory lenders a problem
One of the primary reasons for the spike in foreclosures is subprime loans -- those granted to people who don't qualify for conventional mortgages. They generally come with higher interest rates.
Homeowners may get low- or nothing-down loans to "stretch" to get into homes, but usually have little to buffer them when the unexpected happens: a divorce, a medical problem, job loss or cuts to overtime.
Trott expects the demand for affordable loans will dry up a bit as foreclosures continue to rise.
"The real fallout on that is folks who have decent or good credit are going to find lending more restrictive," Trott said. "Lenders are being forced to look at their practice, as well they should."
Dearborn Heights bankruptcy attorney Jim Frego blames adjustable rate mortgages and predatory lenders more than the economy for his client's troubles. Predatory lending includes convincing borrowers to sign on to unfair loan terms or making loans with the expectation the borrower will default and the lender will be able to sell the home for profit.
"The economy has been up and down before, but we've had an incredible explosion of lenders out there," Frego said. "There is some bait-and-switch that happens. These lenders -- there's not a lot of quit in them."
Adjustable rate mortgages may have a cheap, or no down payment, but when interest rates go up, homeowners find their monthly payment does too.
"I see interest-only mortgages and the homeowner felt that at the end of five years they would be able to refinance because they felt their house was going to be higher in value and they found the opposite was happening," said Guzek, the financial counselor.
Nearly every week, Troy real estate agent Bob Schneider shows up for Sheriff's sales in Macomb or Oakland counties, hoping to find clients who may be able to sell their homes instead of foreclose.
"There's 75 houses that go to sale. Every week I'm trying to find anybody with equity. It's like you got to be kidding, every one of these people has mortgaged their houses to the hilt," he said. "The bidding has virtually almost stopped."
Investors taking advantage
Some are trying to market the foreclosure glut as a golden investment opportunity.
More than 250 single-family homes, condominiums and duplexes will be auctioned off throughout Michigan from Sept. 25 to Oct. 1 by Dallas-based Hudson & Marshall Inc.
Several of the country's largest lending institution's hired Hudson & Marshall to auction the properties to recover unpaid loans. Sales are planned in Dearborn, Saginaw, Lansing, Battle Creek and Grand Rapids.
The properties, which range in price from $15,000 to $450,000, are a "win-win proposition" for investors and owner occupants, said Dave Webb, principal of Hudson & Marshall.
"Buyers get the opportunity to purchase great value properties at reduced prices without the hassles of the seller negotiation process," he said.
That silver lining for investors means heartbreak for many homeowners. But there are some success stories. Laid-off worker John is knitting the financial fabric of his life back together.
John worked out a deal with his mortgage company to stop foreclosure proceedings. He's nurturing a new auto-related small business, sticking to a strict budget and paying off his credit cards.
"I've restarted my own company, so things are looking up now," he said. "Still, all my work is automotive related, so it's probably the worst time."
You can reach Dorothy Bourdet at (313) 222 -- 2293 or dbourdet@detnews.com.
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