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Friday, January 18, 2008
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In lakes area, worst yet to come FORECLOSURES | FIRST IN A SERIES Staff Writer Could this be the tip of the iceberg?
Foreclosures in the Brainerd lakes area were at an all-time recent high in 2007.
But, according to several sources in the Brainerd lakes area involved in the banking, mortgage, financing counseling and real estate, the number of foreclosures most likely will continue to rise and some say people should expect the worst.
Crow Wing County Recorder Kathy Ludenia said in 2007 there were 231 foreclosures, up from 142 in 2006. Back in 2000, there were only 43 foreclosures in the county. The number of foreclosures began increasing in 2002 and no one has a crystal ball to say when the number of foreclosures will begin to stabilize or decline.
Valeri Diller, branch manager at CharterWest Mortgage LLC in Brainerd, said the number of foreclosures has been tough on the mortgage industry. Diller said mortgage companies are having a harder time putting people in loans with no money down and those who don't have the best credit. Diller said the adjustable-rate loans also are beginning to cause trouble.
Diller said interest rates on adjustable-rate loans are increasing, along with gas prices, groceries and other things, while people's wages are not going up at the same rate.
"It's a lot of extra cost for people and all of it's having a snowball effect," said Diller. "People have the tendency to pay the smaller bills first and the house is usually let go because it's the biggest. And once you're behind on your home mortgage it's so hard to make that up.
"It's harder now to find a good loan with any credit issue, so once you have a late payment and you have a low credit score, you sometimes can't refinance.
"Foreclosures have just begun. I believe this year will be worse than last based on the notices of foreclosure and the default rate. It takes at least six months for the bank to get the house back and by the time the houses hit the market, eight to nine months from now you'll have all these houses for sale, flooding the market. In 2009, I hope we'll start coming out of it, but no one today will get into something they can't afford ... Everyone's worried about what's going on."
On a happier note, Diller said it is a buyers' market. She said the interest rate is below 6 percent and those who have provable income and good credit will be able to get a good loan.
Karen Owen, a mortgage lender at First Federal Savings Bank in Baxter, said the mortgage lending industry is changing and is in turmoil. Owen said there were more foreclosures in the area last year, but, "we're doing pretty good here when compared to the larger metro areas."
Owen said, "Foreclosures have impacted the area and people are being more conservative and concerned. They're making sure they get a good price for their home and they're not overspending. Everything has slowed down."
Owen said she is starting to get more calls now after the holidays from people who have adjustable-rate mortgages that are increasing and need help.
Becky Butcher of Bremer in Brainerd said 2007 was one of her best years in originating loans. Butcher ranked No. 5 out of about 60 Bremer loan officers in loan origination. Butcher originated many conventional, new construction, first-time homebuyers and Federal Housing Authority mortgages that primarily had fixed interest rates.
"The media frightened the public on the adjustable-rate market mortgages and they didn't want to get one," said Butcher. "However, the adjustable-rate market mortgages are right for the right reasons. People were just getting into them for the wrong reasons."
Nate Jensen, owner of Atlas Abstract and Title in Brainerd, said his title company business has done more closings on foreclosures than it has in the past. He said there are more foreclosed properties that are selling for a cheaper price and it's driving down the value of all homes on the market.
"We do all the paperwork and make sure everything is in line and that the foreclosed property has not been redeemed to make sure we can transfer the property to the new owner," said Jensen. "Closings on foreclosed properties are a little messier than other closings."
Jensen predicts that the number of foreclosures will slow down this winter, but will pick up again in the spring because the lenders won't want to kick people out of their homes during the cold season.
Jensen said, "I don't think we're done yet with the foreclosures from what I've been seeing."
Sam Foss, a loan specialist at Deerwood Bank in Brainerd, said the bank has had minimal foreclosures this past year, but it hasn't had any foreclosures relating to its Fannie Mae portfolio.
"We never got into the subprimes. I think a majority of foreclosures were due to subprimes and people thought they could afford it, but they couldn't," Foss said. "We mainly do 30-year fixed rate mortgages. We do anywhere from 500-600 loans in residential lending in the Brainerd lakes area."
Foss said the guidelines on subprime loans have stiffened up in the last six to nine months. Foss said Minnesota got proactive in the fall with subprime lending programs and wouldn't allow lenders to let borrowers write down their income with no proof.
Foss said, "From what I'm hearing and reading with the foreclosures is that we may still be in it for the worse. In Crow Wing County it's hard to say because we're sheltered. They (national experts) say that the bottom could be this summer, nationally, and you'd think it'd be here too. There were a lot of adjustable rate and balloon loans that were written well after 2000 and those rates could hit this year and cause more foreclosures.
"We had such a nice window of low-interest rates and home value appreciation and when you compound them with the ARMs' five-year time frame that are adjusting (foreclosures) going to hit and not just in one year. The adjustable-rate loans are not for everyone. People got into them to get a lower payment. It's a three-headed monster. You have the real estate people wanting to sell the homes, the buyers wanting to get into the homes and the lenders giving them money to do it."
Ken Kramer, a real estate agent with Century 21 Brainerd Realty, has been in the business for 19 years, working with several banking companies on selling foreclosed properties. Kramer sold 20 homes that were foreclosed in 2007 and four homes so far this year. Kramer has 50-75 properties that are foreclosed or are in the process of being foreclosed in the Brainerd lakes area.
Kramer said there's not one certain group of people losing their homes. It's across the board. Kramer said many people are losing their primary homes and while others are losing their second home or vacation homes.
"The more expensive homes are coming into foreclosures," Kramer said. "The smaller-priced homes are being cleaned up."
Kramer believes that the number of foreclosures will remain about the same in 2008 because he said the banks may try to help people hang on to their properties longer.
Paul Sandelin, an attorney with Sandelin Law Office in Pequot Lakes, who represents lenders and borrowers in foreclosure, said foreclosures more likely will continue this year because you don't see the economy moving ahead quickly even though interest rates have declined.
"The interest rates are part of the increase in foreclosures, the loss of jobs is another factor and people are overextended with credit-card debt," Sandelin said. "Given all of these variables, with a small increase in the interest rate on adjustable-rate mortgages, that ultimately can be the deciding factor for when a default occurs on a mortgage."
JENNIFER STOCKINGER may be reached at jennifer.stockinger@brainerddispatch.com or 855-5851.
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