Montgomery County foreclosure rates on rise
By Francis X. Gilpin
For those struggling to scrape together a down payment, it seems like the answer to buying a home: an adjustable-rate mortgage with an unbelievably low introductory interest rate and no money down.
Two years into the loan, however, the interest rate jumps. A much higher interest rate means a much higher house payment, which many families find they can't make.
And the American dream falls into foreclosure. It's a nightmare happening across the country and right here in Montgomery County, even in better neighborhoods.
The number of loans in the county written for more than $100,000 on homes that have gone into foreclosure almost doubled in the first three months of 2007, compared with the same quarter last year.
While the number of foreclosures countywide dipped slightly during the first quarter, a Montgomery Advertiser analysis of property records shows $100,000-plus mortgage foreclosures increased from 18 in 2006 to 32 for the January-to- March period this year.
Alabama Deputy Banking Superintendent Trabo Reed isn't surprised.
"This isn't atypical, from what we've been hearing," Reed said.
Alabama isn't unique, according to Scott W. Corscadden, who licenses mortgage brokers at the state Department of Banking.
"I'm a homeowner and I'm concerned," said Corscadden, who has attended conferences lately on the troubled mortgage industry. "I'm a regulator and I'm even more concerned."
Realtor J.C. Schulte is concerned, too.
Schulte listed a house for sale in east Montgomery's Young Pointe subdivision last month. A couple of doors away are two homes -- side by side -- that were recently sold to lenders by auctioneer or foreclosure deed.
James and Krista Coons, Schulte's clients, hope their former neighbors' failure to make the payments on $100,000-plus mortgages won't keep them from getting a fair price.
More and more homeowners with specific types of adjustable-rate mortgages are facing foreclosure. The mortgages devolve into essentially a 2-year balloon loan.
From 2002 to 2006, lenders heavily promoted sub-prime loans to borrowers with poor credit scores. Many of the loans required little or no money down. After a low introductory "teaser" rate of below 4 percent, the interest rate adjusts to a double-digit percentage. The monthly payments become unaffordable and foreclosure isn't far behind.
Many homebuyers qualified for their mortgages on a debt- to-income formula only for the teaser period, yet lenders wrote the mortgages anyway, Corscadden said.
The spike in foreclosures brought sub-prime loans to the attention of federal lawmakers. A Senate banking subcommittee called a hearing last fall.
"Sub-prime lending is not a small problem that affects only a few homeowners," Michael D. Calhoun, who heads the Center for Responsible Lending, told the senators. "One in every four home loans originated in 2005 was a sub-prime loan."
In 2005, Montgomery had the 16th highest sub-prime refinancing activity of more than 300 U.S. metropolitan areas studied by the Consumer Federation of America. Almost 22 percent of Montgomery area homeowners refinancing their mortgages were given a new interest rate 5 percentage points or higher than the U.S. Treasury rate.
By comparison, Decatur and Dothan each had about 25 percent of homeowners refinance. Mobile, Birmingham and Tuscaloosa each had approximately 20 percent.
Cinque J. Cullar purchased one of the houses on the circle where the Coons family lives. Although county records don't indicate his $158,000 loan came with an adjustable interest rate, a Decatur mortgage company apparently financed Cullar's entire March 2006 purchase.
The mortgage was sold in November to Wells Fargo Bank, which foreclosed and bought the property at auction for $167,402, the loan balance. For tax purposes, the county values the 1,794-square foot, two-story house at $169,600. Cullar, who couldn't be located for comment, held title for less than a year.
Real estate agent Schulte has noticed more and more higher- end Montgomery homes going into foreclosure.
"It's the result of what's going on with these sub-prime loans," Schulte said.
Corscadden, the banking official, and other regulators think the full impact of the loose lending practices hasn't been felt yet.
" '08 is the really worrying year," Corscadden said