Higher Interest Rates Are Forcing Housing Foreclosures across the Country
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MARY WENKE, Public Trustee, Arapahoe County: Good morning, ladies and gentlemen. Welcome to our sale this morning in Arapahoe County…
TOM BEARDEN, NewsHour Correspondent: Eighty-seven properties were on the auction block recently in a weekly sale in Arapahoe County near Denver. All but one were homes in foreclosure because the owners failed to make their mortgage payments.
MARY WENKE: We have to maintain that file on an active status until…
TOM BEARDEN: Mary Wenke has been running these auctions for the last eight years. In her first year as the county’s public trustee, she handled 700 foreclosures.
This year, Wenke’s filing cabinet is already bulging with more than 1,600, and she anticipates a total of 5,000 for the year. She’s even selling houses with mortgages signed earlier this year, where people never even made the first payment.
Do you ever think about the people behind these stories?
MARY WENKE: Of course we do. And, you know, this is not fun work to do, because we know that, for every file that we handle, there’s a family or a person out there that’s being displaced.
Housing dilemnas over payments
TOM BEARDEN: Colleen Shannon is currently facing the loss of the three-bedroom condo she shares with her 11-year-old son, Ryan.
COLLEEN SHANNON, Homeowner: It's been very stressful. I think my poor son has probably seen a different side of his mother that he didn't think he'd ever see, you know, the days where you're crying and the days where you're slamming things down.
TOM BEARDEN: She was forced to quit her job as a letter carrier because of an on-the-job injury. She says it took a year to start receiving disability checks. Family loans, disability checks, and child support weren't enough to meet her monthly mortgage; she missed her first payment a year ago, and things began to go downhill fast.
COLLEEN SHANNON: It's just been a spiral effect, I guess, just snowballed out of control. It's kind of trying to accumulate the money to pay the mortgage when, you know, you don't have any income. And when you get that money, it's like everybody's wanting it, and it doesn't even touch your hands before it's gone.
I had, of course, you know, like in everybody's life, financial situations that come up. My car needed fixed. I had to have two root canals done. You know, my son had some things that came up. So, you know, just life things that come up, and it didn't help.
Foreclosures up by a third
TOM BEARDEN: In April, after months of rising interest rates, foreclosures all over America were up by a third over the same month last year. They were up 22 percent over April 2005 in Texas; up 61 percent in Indiana; up 300 percent in Georgia.
Many observers blame adjustable rate mortgages, ARMs, where monthly payments are coupled to rising Federal Reserve interest rates. Mortgage lender Tom Gross also point to other forms of so-called creative financing.
TOM GROSS, National City Mortgage: One of the things that I've seen since I've been in this industry is circumstances where people actually put a client into a loan that I can't believe in my wildest imaginations that they don't know, when the loan starts, that the client will never be able to survive when the changes start happening to that loan.
TOM BEARDEN: He says some homebuyers bear responsibility, as well.
TOM GROSS: I think, under certain circumstances, people feel that they absolutely have to have a bigger house than what that traditional 30-year mortgage would offer to them.
TOM BEARDEN: In Colorado, Arapahoe County's April rate was five times the national average. Eighty percent of the cases were in the city of Aurora. In some neighborhoods, you can find several homes foreclosed on the same block. Most are single-family houses originally purchased for under $200,000.
This house was foreclosed on twice in two years. Wenke says that's not unusual.
Zachary Urban has been trying to help Shannon work out a repayment plan to stay out of foreclosure.
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TOM BEARDEN: He's with Brothers Redevelopment, a Denver agency that counsels homeowners. Urban says, once people fall behind, they often become vulnerable to companies who swamp them with promises to help but are often scam artists.
ZACHARY URBAN, Housing Counselor, Brothers Redevelopment: They're selling hope or, in many cases, they're renting hope to the consumer for a short period of time. But, in many cases, what's happening is those foreclosure scam artists are saying things that are misleading, presenting the issue in an unscrupulous manner that says, "Don't worry about it. We're going to save your home. All you need to do is sign on the dotted line."
COLLEEN SHANNON: They come in droves. I think the first day I must have gotten six or seven of them in the mail, and I mean, it's just -- they just bombard you the first week. There's 30, 40 of them here, right down to the little refrigerator magnet. We got some of those.
You know, just the single postcard stuff to actual letters, and then you get the actual letters that makes it look like it's official looking like it's coming from the attorney's office, because it's got his name at the top.
Companies claim to help save homes
TOM BEARDEN: Patricia Hengeveld signed up with an outfit called HomeSavers when she faced losing her home in Denver in 2002. The company offered to pay off her mortgage and rent the house back to her, supposedly with lower payments, and give her an option to buy it back in two years.
PATRICIA HENGEVELD, Homeowner: They were very specific, stating, "Your name will remain on the title of the house. This is your house. We are not taking your house." And I said, "Wonderful." And I said, "Now, you promised that this is what's going on." And they give you stacks, and stacks, and stacks of paperwork, and they don't sit there and explain anything to you.
TOM BEARDEN: Hengeveld says, instead of saving her home, they took it from her. But the paperwork was so complex, she never grasped that.
She's one of 277 homeowners who recently won a class-action lawsuit against HomeSavers' parent company, despite its argument that it had helped many people. The judge found HomeSavers used fraudulent techniques to get people to sign away their homes under the guise of saving them.
Hengeveld's lawyer, John Head, has handled 400 such cases in the past few years.
JOHN HEAD, Lawyer: They say, "We have another way to do this. This is an alternative to traditional form of finance." So, you know, a drowning man will grab a snake if you throw it to him on the outside chance it's a rope.
Well, what these people don't understand is that, when they signed this deal and the debt service -- their monthly payments are about the same as the debt service -- a month or two down the road, they're going to be back in trouble again, because they've got too much house for their family finances.
And as soon as they get back into trouble, then they get evicted. And in very short order, you can have the sheriff out there throwing their stuff out in the yard.
State laws to protect homeowners
TOM BEARDEN: Several states have enacted laws aimed at protecting homeowners from foreclosure scams. Colorado passed its own version a few weeks ago.
MEETING COORDINATOR: Are all you folks sort of first-time homebuyers?
TOM BEARDEN: Every month, the city of Aurora holds a class for people who want to use the city's down payment assistance program. Homeownership is an exciting prospect for John and Theresa Hart, who are finally ready to move up from renting.
JOHN HART, Potential Homebuyer: We feel right about right in there where we can put our foot in the door, and keep this house without losing it, and get the rate that we want, number one, and be able to afford it, and without having to worry about losing it.
TOM BEARDEN: Mortgage banker Gross wants to help this bunch of prospective first-time homebuyers avoid winding up on the foreclosure list.
TOM GROSS: I track the foreclosures in the state of Colorado. This is a list of all the foreclosures that have been disclosed on the Friday disclosures from the different counties in the state of Colorado just during 2006. We don't want to have any of you show up on this list.
TOM BEARDEN: Yet, if statistics hold, at least a couple of people in this room could be in foreclosure a year or two from now. The Harts say they've gotten the message.
What kind of loan are you looking at, 30-year conventional loan?
JOHN HART: Yes, 30-year conventional loan.
TOM BEARDEN: Not an ARM?
JOHN HART: No, not an ARM, definitely not an ARM, definitely not an ARM.
MARY WENKE: The current beneficiary, Peak National Bank, bids the sum of $97,000...
TOM BEARDEN: But no one foresees any immediate end to the wave of foreclosures. Mary Wenke's auction drew only one set of bidders and that was for a rare commercial property. There were no outside bidders for the 86 residential properties.
MARY WENKE: ... bids $116,000 even...
TOM BEARDEN: Wenke says that's typical because few houses are worth enough to fetch a profit once the new buyer pays off the loan. She says the average mortgage she sees goes into foreclosure only a year to a year and a quarter after it's signed.