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Stumbleupon'Perfect storm' forecast in foreclosure mess
Census data identifies rising number of 'house poor' Ohio mortgage-holders who are at risk.
Sunday, September 28, 2008
The housing crisis tsunami is building in Ohio.
Sagging housing values and rising percentages of families who have too much of their income tied up in their homes — combined with local job loss, stagnant pay and increasing costs for food and energy — have created what fair housing advocate Jim McCarthy called a "perfect storm" that's likely to cause more foreclosures in the year to come.
The state's median value of owner-occupied homes declined by an inflation-adjusted 0.9 percent in the 12 months beginning July 1, 2006, according to a Dayton Daily News analysis of new data from the U.S. Census Bureau's American Community Survey. The previous year's survey showed a 1 percent increase statewide.
The census numbers, released last week, also show an increase between 2000 and 2007 of two-thirds in the number of Ohio mortgage-holders who have more than half of their household income committed to housing expenses. These people have trouble affording other necessities and are particularly at risk for foreclosure, experts say.
"It's really hard to find a silver lining in that cloud," said Suzanne Gravette Acker, spokeswoman for the Coalition on Homelessness and Housing in Ohio.
The newspaper's analysis shows that Ohio was one of only 14 states nationwide that saw median property values decline from 2006 to 2007. Of the 14, Ohio ranked 11th worst with the 0.9 percent decline or a $1,235 loss in median value. Ohio's median housing value is in the bottom third of all states in 2007.
In addition, values in more Ohio counties began to decline in the 2006-2007 period. In 2007, 27 of the 38 Ohio counties large enough to be covered by the survey, which covers political jurisdictions of 65,000 or more, showed declines. That was up from 17 the previous year.
Good news/bad news
"The good news and the bad news is that we're in the Dayton area, in the Miami Valley," said James Durham, a University of Dayton law professor specializing in real estate transactions and finances. While values here don't go up as quickly as in some regions, he said, they tend to be more realistic so they're not as given to bubbles. "In Ohio, we're talking about less than a percent (decline), when nationally they're talking about the 'housing value calamity.' "
Durham and other experts were concerned about census numbers that show substantial increases in the numbers and percentages of mortgage-holders who pay more than 30 percent and more than 50 percent of their household incomes for housing costs such as mortgage payments, property taxes, home insurance and utilities.
Statewide, almost 222,000 — more than one in 10 Ohioans who had a mortgage during the period — were spending more than half of their household income on these costs. That's up from 7.4 percent of mortgage-holders in 2000.
Ohioans, however, were still better off in the house-poor category than 36 other states. California, with its sky-high property values, was the worst in the nation, with almost 1.3 million or 24 percent of its homeowners spending at least half of their income on housing. It was followed by Florida with 21.7 percent, Hawaii with 19.3 percent and Nevada with 19.1 percent. Nationwide, 7.5 million or 14.4 percent of homeowners with a mortgage were in that category.
The trend is partly a consequence of a decade of heavy marketing by lenders to convince homeowners to refinance to pay off consumer debt, said McCarthy, president and chief executive of the Miami Valley Fair Housing Center. At the same time, lenders lowered their underwriting standards, approving loans to people with less income, fewer assets and lower down payments.
"The process was really turned on its ear," McCarthy said. When people sought to borrow against their home, "instead of saying, 'we'll send out an independent appraiser to find out how much your property is worth,' (lenders) would say, 'how much do you need?' "
It made sense to replace high-interest credit card debt with second mortgages and home equity lines of credit. However, McCarty said, "when you don't pay your Fashion Bug (bill), they get a judgment against you. They don't foreclose on your primary place of residence."
A new wave of foreclosures is likely to begin soon, McCarty and Durham said. That's because of a subprime instrument called a payment option adjustable rate mortgage.
Payment option ARMs allow borrowers to make minimal monthly payments that can be even less than the amount of interest owed in the early years of the loan. Unpaid interest is tacked onto the amount of the loan principal. The monthly payment is recalculated after a built-in adjustment period, usually every five years.
Up in ARMs
McCarthy said borrowers took these loans with the idea that they could make payments as low as $250 per month on a $175,000 house while their home appreciated in value for several years, then refinance with a more traditional loan. But with the economy in trouble, refinancing often isn't an option and borrowers could see their monthly payments explode to $2,500-$4,000 for that same $175,000 home, he said.
These recalculations will begin hitting borrowers next month, McCarty said, and continue through 2010. He expects foreclosures to rise by 15 percent to 20 percent.
"The concern is, there are going to be more defaults," agreed Durham. "This would give you real concern that you're going to see more foreclosures coming rather soon."
Contact this reporter at (937) 225-2393 or kmccall@DaytonDailyNews.com.
