Foreclosure crisis
Ongoing problem affecting all neighborhoods
By Katy Stech
Ongoing problem affecting all neighborhoods
The Post and Courier
Charleston County Sheriff's Department Sgt. Frank Thompson (left) and Deputy George Murray place an eviction notice on the back door of a foreclosed condominium, West of the Ashley, Friday, February 8. They had already placed an eviction notice on the front door, but they have to place notices on all sides of the property.
The Post and Courier
Harriet Hendricks, a clerk with Charleston County calls out cancellations from the foreclosure list outside the courthouse in January.
Maps of Charleston County homes foreclosed in 2007
Where to get help
Family Services, for in-person counseling, located in North Charleston, affiliated with the HOPE line: 744-1348, ext. 38.
The Homeownership Preservation Foundation, free counseling online or by phone, 24 hours a day: www.995hope.org or 888-995-HOPE
Trident United Way, free counseling: 740-9000, ext. 233, or ask for Robert Mitchell.
Charleston Area Community Development Corporation, free financial counseling: 853-9797.
Despite a lifetime of hard work, Robert and his family are in danger of losing their comfortable home in Mount Pleasant to foreclosure, after a workplace slowdown dried up his income.
"When you're in that situation, it's humiliating," he said. "When you're wondering whether or not they have to move out, it's tough, and hell, it makes you feel that even though you know you're capable of providing for your family, you're not doing a very good job."
Robert, who didn't want his last name printed to protect his family, is one of more than 2,300 individuals and families in Charleston who faced foreclosure lawsuits from lenders last year. His story illustrates a crisis that has stretched beyond low-income areas to affect the classic middle-class family.
The local foreclosure rate isn't as severe as the national rate, which rose 75 percent last year, but county officials say they expect the numbers to rise as Charleston catches up with the trend. And across the country, the higher rates are giving people pause
and prompting the question: How did we get here?
The story behind each foreclosure is different and deeply personal. Experts point to banks that granted risky loans to people who couldn't afford them but were willing to take them. They cite a lack of government safeguards and a real estate industry that couldn't take in money fast enough during an unprecedented housing boom. And driving all these forces is each homeowner's ambitious pursuit of the good life.
"It was just a desire to get a new house with granite counter-tops and a view of the pond. That's the great American Dream," said Irv Futeral, who owns a real estate company called Monterra that sells distressed properties.
Public records show a clear trend:
--The number of foreclosure lawsuits filed in Charleston County has increased 37 percent in the past three years. Since 2000, the rate of foreclosures has grown from 1 out of every 200 homes to nearly 1 out of every 125 homes.
--Officials in Dorchester County were accustomed to preparing a steady amount of distressed properties for sale — 333 in 2004, 329 in 2005, 339 in 2006 — until last year, when the number of properties set for sale jumped 30 percent to 427, according to equity court office data.
--Berkeley County courts recorded 768 property disputes between lenders and individuals last year. That's more than twice the number of disputes filed in 2005.
The numbers conflict with what is reported each quarter by RealtyTrac Inc., a private company that tracks foreclosures and routinely pegs South Carolina as an area with low rates. Officials from that company admit that their South Carolina figures aren't as solid as those for other states.
The rising foreclosure rates affect homeowners of every social class. Low-income neighborhoods historically have had high foreclosure rates, but public records show that foreclosures have popped up in a range of neighborhoods, from clusters of modest ranch-style houses in West Ashley to expansive suburban homes in Mount Pleasant to luxurious retreats that overlook the ocean on Folly Beach, Sullivan's Island and the Isle of Palms.
Homeowners of every class took advantage of loose lending practices, including mass originations of adjustable-rate mortgages. Now, the interest rates on those loans are jumping, helping create a financial crunch that transcends economic boundaries.
"Whether you're in Mount Pleasant or rural South Carolina, there's only so much you can afford a month. Once those loans reset, most people can't handle the payment shock," said Brad Rundbaken, who writes the Charleston Market Report and has worked as a local appraiser and real estate agent. He is a principal with Diversified Resource Group, a California-based investment firm.
Taking ownership
The events that would later lead to higher foreclosure rates in Charleston and across the country began around 2001.
Industry leaders in real estate began stressing the benefits of homeownership, and the Federal Reserve Board cut interest rates 11 times that year, partly to offset a recession that began in March 2001. The rate cuts helped make mortgages more affordable.
Still, not every buyer qualified for the traditional 30-year fixed-rate mortgage. So lenders got creative. They began pushing adjustable-rate mortgages, which start with low monthly payments and reset to higher rates after a certain number of years, usually three or five.
Lenders also started granting loans that didn't call for a standard 20 percent down payment. Some loans didn't require applicants to disclose their income levels, because they relied solely on credit scores.
"There (was) a real push nationally to increase homeownership, and there may have been some folks that we really encouraged to become homeowners that were not prepared to become homeowners," said Tom Hood, president of First Federal Savings and Loan Association of Charleston, which shied away from unconventional lending packages.
Investors, whose stock portfolios were still throbbing after the collapse of the dot-com bubble, saw opportunity in the trend and also began buying real estate.
Taking risks
As homeownership caught on, the basic rules of supply and demand took over: With more buyers and fewer properties, home prices began rising across the country.
The median home price in Charleston jumped from $169,450 in early 2004 to a figure that now tops $211,000.
Soon, home buyers, investors and residents alike, started to need creative loans to be able to afford a piece of property. They looked for loans that started out with low monthly payments and ones that allowed them to borrow more than the home was worth.
The money was lent with the expectation that the home's value would continue to soar. Some homeowners took out adjustable-rate loans thinking they'd get a better job soon. Some thought their usual yearly rise in salary could cover future rate increases. Others figured they would sell the home before the rate reset.
Many figured they could refinance using equity from their home's higher value if the monthly payments started getting too high.
There were risks, of course: Adjustable-rate loans don't leave much breathing room for unexpected life events — a divorce, a sudden illness, a job loss during a period of economic slowness.
During the real estate boom, the average family got rich simply by owning a home. They borrowed money against their home's newfound value. And some traded their homes in for much nicer properties, prompting onlookers to join the fray and creating what Rundbaken calls "a gold rush mentality."
Take the story of James, who also asked not to be identified by his last name.
Throughout his life, he dabbled in different careers, and as the local real estate market heated up, he decided to become a landlord. He bought a handful of properties — a few in North Charleston, two on Daniel Island and several on James Island.
But his tenants were less than reliable, and his adjustable-rate payments soon rose beyond what he collected in monthly rent. When he couldn't pay, lenders filed for foreclosure on all eight of his properties, including the home he's living in.
No one thought to slow the pace of the rapidly heating real estate market, Rundbaken said. Too much money was changing hands.
Many careers in real estate — closing attorneys, title companies, mortgage brokers, real estate agents, property appraisers, builders, bankers and other lenders — are paid by commission, he said.
"You're talking about the local real estate industry. It's a huge part of the local economy," he said. "There was so much money at stake. The market increasing like it did allowed a lot of people to make a lot of money."
Reality sets in
But finally, the market turned. Home sales fell, as did values, creating huge problems for homeowners with adjustable-rate mortgages.
Unable to refinance or sell, some homeowners began to miss their mortgage payments, and the local foreclosure rate began rising.
A foreclosure doesn't affect just the individual or family facing the prospect of losing their home and having to move. Foreclosures are further depressing an already slow real estate market.
Properties sold at county foreclosure auctions usually sell at a 20 percent discount compared with similar houses in the neighborhood, experts say. A discounted price affects the value of all homes in a neighborhood for about two years, and nearby homes lose about 1 percent of their value when a foreclosure happens, according to a study from the Fannie Mae Foundation.
The blame for higher foreclosure rates has been placed on an array of groups.
Mortgage brokers took heat for bonuses they got for steering homeowners toward riskier loans. Federal officials and policy advocates have criticized former Fed Chairman Alan Greenspan for not listening to their warnings several years ago to tighten mortgage regulations.
Homeowners blame real estate agents for failing to warn them of the market's imminent correction. And cities such as Cleveland have filed lawsuits against major lenders, alleging that irresponsible lending practices have strained city budgets as workers maintain abandoned homes and authorities deal with a rise in violent crime and arson.
"The bottom line is that everybody's a little guilty, some more than others," Monterra's Futeral said.
The finger-pointing doesn't help families such as Robert's in Mount Pleasant, though he insists that he doesn't need help. Especially from the government.
Robert said he believes in people pulling themselves up by their own bootstraps, and he's in the process of doing just that. Business at work has picked up in recent weeks, and he and his wife, determined to keep their home, are two months into a program that is meant to get them back on track with their lender.
"This is my home," he said. "This wasn't some investment. This is where we live."
David Slade and Michael Buettner contributed to this report. Reach Katy Stech at kstech@postandcourier.com or 937-5549.
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MMitchum (anonymous) says...
I was 1 of the foreclosures.....in Berk Cty. My payments jumped over 200.00 then in 6 months was to jump again...told my lender this was something I couldn't do. At closing their lawyer came to my house...wasn't from the Chas. area.... I was stupid due to thinking it was based on the rate at the time not the rate they chose to increase after 2 years. So my ex-home has just been sold, and also someone stole the AC unit after a few months of being empty for the copper so FHA and VA wouldn't touch it. So someone bought it and it is now a rental for them. Oh and a 1099A form came in the mail and she bought it for 1000.00 above my balance. And this company never sent me the interest I paid for the year 2006 either....go figure.
Stupid me. The Morgage Company had lawsuits against them but I didn't qualify for some reason.
February 17, 2008 at 2:02 a.m. ( permalink | suggest removal )
easyoldrider (anonymous) says...
It is the same here in California.
February 17, 2008 at 7:52 a.m. ( permalink | suggest removal )
moonpie (anonymous) says...
I don't get it. I have been offered these type mortgages and I have turned them down. I think most people that used them were getting into a house they couldn't afford. The lure of a low monthly payment up front is very appealing.
February 17, 2008 at 8:11 a.m. ( permalink | suggest removal )
RTC (anonymous) says...
Never buy a home with an ajustable mortgage.... period.
Those loans like Fanny Maes and Sophie Maes(sp?)are designed to get you into a house for the first time.
Get rid of those as soon as possible and get a fixed rate mortgage. The lenders don't care how you will afford the payments, and many first time buyers bite off more than they can chew.
People are amazed that my family has such a low monthly payment compared to what others are paying for rent.
I would say that if you have a decent down payment most people can afford a home better than they can afford these rent payments, plus you get the interest and tax write offs.
It may to take years to save up for your own home, but it is worth it in the long run. Educate yourselves about mortgages, and don't get caught up in these risky loans.
February 17, 2008 at 8:38 a.m. ( permalink | suggest removal )
chucktonian (anonymous) says...
this is the free market at its finest.
these subprime lenders and people who couldn't afford these houses misbehaved, and now they're getting stuck with the tab. if people would follow the dave ramsey guidelines for homeownership:
never more than a 15 year fixed with a payment no more than 25% of your take home pay.
that's all. anything more than that and you cannot afford it. I have no sympathy for these foreclosures.
February 17, 2008 at 9:41 a.m. ( permalink | suggest removal )
10216340 (anonymous) says...
I don't feel a bit sorry for anyone that loses their home unless you have unforseen catastrophic circumstances that cause a loss of income (health issues, loss of job, divorce, that type of stuff) AND if you where in a home that was a good fit for your income to begin with. Everyone else is now getting what they deserve.
My husband and I work and make our house payments on an older home we purchased years ago. Yes, it was tempting to get on the bandwagon and purchase a new home in one of the newer, nicer subdivisions (and believe me, we could have afforded it), but is was apparant to us (and should have been to everyone else), that this housing/mortgage situation was bound to come to an end sooner, rather than later.
Maybe the lenders should have also required an IQ test as part of the mortgage package.....that would have probably taken care of most of the problem. Now, even though we did not participate in this foolishness, we will most certainly have to help pay for it, one way or another. I am amazed at the number of idiots out there!
February 17, 2008 at 9:46 a.m. ( permalink | suggest removal )
Oceanlover (anonymous) says...
Interesting that Realtytrac admits they don't have solid info on SC. I was always suspicious about their lower numbers than national average when what you see driving down the road or reading Craigslist seemed to give a more accurate portrayal of what was going on. It seemed impossible to me that even the most together looking young yuppie couple showed on "Flip This House" was going to be able to actually afford that half a million dollar flipper cottage in W. Ashley or the Old Village. I'll tell you what - Richard Davis was a freaking genius for seeing this craziness early on - and cashing in w/a show about it. But I'd be darned intererested to know how many homes Trademark, or anyone - is flipping now. Who knows, in a couple of years, when values are LOWER than they were at the start of this insane boom, maybe that half a mill flipper will be priced in the high hundreds where it shouldve been along. But, of course, this insane boom might well have put us put us in a depression by then, so I might not have a job.
February 17, 2008 at 10:05 a.m. ( permalink | suggest removal )
RMPW2000 (anonymous) says...
I hate seeing stories like this. This just reinforces the idea that people are owed something by the government. How about people learn PERSONAL RESPONSIBILITY. I feel no sympathy for any one of these people. They took a gamble and they lost. I am sure "Robert" has some education. If he wasn't able to figure out that he was going to still have to pay his mortgage even if his income changed then at least we should by comforted in the fact that his credit is now probably destroyed and he will never be able to buy a house again. This is what is called a self-correcting evolution. It's time people start learning from their mistakes instead of asking the federal government to help them out. Also, this isn't greed on the realtor's part or the mortgage companies. The true greed were the people who wanted more house than they could afford just so they could keep up with the "Jone's".
February 17, 2008 at 10:13 a.m. ( permalink | suggest removal )
JohnS (anonymous) says...
If you notice Richard Davis does not buy in tract neighbor hoods he uses older neighborhoods that allow some custom work to be done. These houses will always be in demand.
They are selling homes like cars now advertising no payments for one year ect. If you can't afford a house at the 30 year fixed now you won't be able to afford it on an adjusted arm three years from now.
February 17, 2008 at 10:19 a.m. ( permalink | suggest removal )
jammer (anonymous) says...
mine's on a 15 yr fixed at less than 15% of my income and I'm not an MBA... so no it doesn't take a scholar to realize you can't afford what you can't afford as Yogi would have said
I'd never get anything but a fixed, but I'm not a gambler
I feel for the ppl that lost thier dreams due to a job situation that went away, but not for those that knowingly took on more than they knew they could afford
on the up side, apartment owners should be getting wealthier as they fill to capacity
February 17, 2008 at 10:47 a.m. ( permalink | suggest removal )
rmsems (anonymous) says...
archdude:
those folks may have been stupid to by a house for 305K a year after someone bought it for 200K. BUT: They needed a mortgage and someone appraised it, so they can get financed and I know and have seen it in black and white -- from an old mortgage broker friend of mine, that they only work with appraisers -- some real estate professionals as well -- who appraises it above market value in order to get the sale done and everyone their commissions. Those are the bad eggs in the basket and there are plenty of these foul eggs to go around.
And just check out the MLS what "great deals" these realtors advertise and call them. They will guarantee you that the home will appraise for that value. I can give you plenty of examples. Of course, I wouldn't have bought that 305k house, but then I bought and sold enough real estate to know how to do my homework. First and second time buyers do rely on their agents and bankers for advice which a lot of times isn't worth two cents.
February 17, 2008 at 11:08 a.m. ( permalink | suggest removal )
whome (anonymous) says...
Yes, personal responsibility does play a big part in this crisis. However, it was the great Alan Greenspan stated that ARMs were the way to go for most homebuyers. And it was George Bush who for the past several years has continually rolled out the fraudulent "home ownership" (as opposed to home-equity ownership) statistic as the indicator of how the his economic policies were helping minorities and the middles class. Yet, both of these officials were aware that the housing market was built on cards, but for political expediency refused to reign in the excesses that made the bubble possible.
The sad reality is now that the credit crisis has moved beyond sub-prime (always an easy psychological target) buyers and into all of the other asinine financing schemes that states, counties, and other entities used to build up the infrastructure based on these ridiculous economic growth figures that have been floating around the past several years. We've already seen Berkeley County have to admit that utility rates will increase because of huge spikes in the auction-rate interests. Now think of all the school districts that DID NOT pay for their brand spanking new schools with fixed-rate bonds, because a referendum would have been needed, but instead chose these alternative leasing mechanisms. So taxpayers get a nice double whammy. Decreased assessments as housing prices correct, and increased fees and taxes to pay for the increasing interest rates for the capital expenditures.
February 17, 2008 at 11:25 a.m. ( permalink | suggest removal )
chucktonian (anonymous) says...
I have to commend you, archdude. I have finally met someone who knows everything. We all bow in awe of your mighty genius.
February 17, 2008 at 11:35 a.m. ( permalink | suggest removal )
please_believe_it (anonymous) says...
i believe you can still feel sorry for people (especially children) that have bad things happen to them even if it was in part there own doing. That's just having compassion. We all makes mistakes based on just being human. It doesn't detract from the fact that many people were greedy, impatient or uneducated by their own design and then taken advantage of by some lenders. Its the classic "mark" setup. The best guy to fall for a gambit is the over eager fool.
February 17, 2008 at 11:37 a.m. ( permalink | suggest removal )
kerwin1959 (anonymous) says...
I've been in mortgage banking since 1982. This whole mess started when brokers(not bankers) started offering loans at 125% of the value of the home. At that point, why would the borrower care if they walk away from a loan. They have no equity. We protested to Congress, but the National Assoc. of Realtors has so much more money for lobbyists, we were constantly ignored.
Then came the sub-prime adjustable rates. Then came the no-income verification loans, etc. Investment companies were using other peoples company pension funds, insurance funds, etc., and the money was readily available for those who wanted it. A vicious cycle had begun. Those of us in the business predicted this crisis long before it happened, but the government(Congress, Dept. of Consumer Affairs) would not intervene. Real Estate was booming, Realtors and Mortgage Brokers were getting rich, and the economy was booming.
Now, there's no easy remedy, and the companies who service these loans(the company that you send your mortgage payment to) don't have a lot of say in the foreclosure of a property because they didn't actually lend the money to the borrower. They're just going by the guideline of the investor who actually loaned the money.
Here's the deal on mortgages: Never get an adjustable rate mortgage unless you can afford to pay the payments at the indexed rate(the rate it would be if it adjustable upward as high as possible). Fixed rate loans are your best best. FHA and VA loans are good, and conventional fixed rates are good, as long as they are underwritten(the approval stage of a loan) according to FNMA(Fannie Mae) or FHLMC(Freddie Mac) guidelines. The guidelines set forth by FHA, VA, FNMA & FHLMC, take into account certain criteria that can best predict a borrower's ability to repay a mortgage. Of course, no one can predict a catastrophic illness, loss of income, divorce, etc.
Hope this helps.
February 17, 2008 at 12:55 p.m. ( permalink | suggest removal )
GG (anonymous) says...
MOUNT PLEASANT=
Cookie cutter, non-custom houses selling at $200+ SF!
Housing so costly, our primary professionals - police, firemen, nurses, teachers - can't afford to buy here!
Greed, greed, greed!
February 17, 2008 at 4:10 p.m. ( permalink | suggest removal )
SeaSaw (anonymous) says...
Hi Chucktonian,
I love Dave Ramsey too. Can you tell me what time and radio station he is on in the Charleston area? I moved away due to the base closure but still have loved ones in the area that don't know what station to catch him on. Any help would be appreciated.
Archdude if you are that knowledgeable. I'm sure you too enjoy Dave Ramsey. He's the man and he's got one hell of a plan.
Us Dave Ramsey people learn to live with criticism each and every day from the ones not willing to get with the program. Yes,his program is very simple. It's just amazing how many people chose to live beyond their means knowing full well they will have to pay the piper eventuality.
February 17, 2008 at 4:15 p.m. ( permalink | suggest removal )
justice4all (anonymous) says...
RMPW2000...
It was most definitely greed on the part of mortgage brokers who were offered bonuses to steer people in the direction of Adustable Rate Mortgages. I just wonder how do these mortgage brokers feel about the families they have hurt? My guess is they probably don't feel at all-as long as they are in their beautiful homes why should they care? It is all about the mighty dollar. Everything comes to light sooner or later-now the mortgage brokers are seen in the light. How does it feel being in the spotlight ???? I can tell you how it feels-when someone asks what you do for a living just tell them you are a legalized loan shark.
February 17, 2008 at 7:51 p.m. ( permalink | suggest removal )
moonpie (anonymous) says...
I sold a house for $425000 and the people had it for sale for $899000! After 5 years I might add! Talk about trying to make a profit. Your right all, the market was way over valued and your also right a lot of people are to blame. Bascially appraisers set their price at the sellers price, no matter what that was.
If you have some money there are some bargains out there. Myrtle Beach area is even worst. Lets go condo shopping!
February 17, 2008 at 8:04 p.m. ( permalink | suggest removal )
carowinds (anonymous) says...
Sorry, the blame belongs squarely on the shoulders of the borrower/homeowner who is so unaware of their own financial situation that they don't understand exactly how much they can afford to spend on housing. Lenders are more than happy to take advantage of that ignorance by pushing the largest possible loan on such a borrower. You can blame the real estate agents, blame unscrupulous lenders, blame whomever you like, but if a borrower is so completely uninformed about the realities of their own financial situation that they allow themselves to be talked into a home they can't really afford, and they don't understand the terms of the mortgage into which they are entering, then they deserve exactly what they get.
The main lesson to take away from all this mess -- no one has your best interests at heart except you. Just because a lender tries to foist a huge interest-only mortgage on you doesn't mean you have to accept it. Information is always your best weapon, and full understanding of your complete, accurate financial situation is the first step toward a house you can actually afford, which is not necessarily the house you actually WANT.
February 17, 2008 at 8:48 p.m. ( permalink | suggest removal )
southbel (anonymous) says...
I know I am to blame for my own ARM that I am in, but I wish I were smarter about the whole process when I bought my home. It was my first foray into the mortgage process. I bought my first home cash. So, it wasn't a matter of saving money - I did that plus some! For this house, my second home, I put down 45%. I also had the income, easily. However, I was moving to this area and with a new job.
Thus, the lender told me that I could not get a fixed loan because I had a new job even though I had a letter from my employer with the guaranteed income stated on the letter. I should have gotten an FHA loan but instead I believed the lender and let them talk me into an ARM. I didn't read anything in my research about my situation, so I didn't know what to do. I was just naive, which I know is no one else's but my own fault. Now, I have to figure out a way to refinance, but luckily, since I had a large amount down I should be able to do so. Still, lesson learned.
February 18, 2008 at 6:40 a.m. ( permalink | suggest removal )
kgirl (anonymous) says...
I read a book called "Mortgage Meltdown" and it really helped me understand that I'm not the only one going through this. I was also able to apply for a grant from a non-profit to help me with my mortgage. I think anyone who is trying to save his or her home, like me, should read this. Go to www.48grant.com
September 24, 2008 at 7:06 p.m. ( permalink | suggest removal )
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