Kent County foreclosure turmoil predicted to hold

November 29, 2010
| By Pete Daly |
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Residential foreclosures in Kent County during the first six months of this year were nearly as high as the brutal first six months of 2008, and 15 percent higher than the first six months of last year, according to the Community Research Institute at the Johnson Center for Philanthropy at GVSU.

“Kent County, in the first six months of 2010, saw 1,795 foreclosures. That’s up from the first six months of 2009, which was 1,553,” said Tracie Coffman, financial counseling manager at Home Repair Services of Kent County, a HUD- and MSHDA-certified nonprofit organization that tries to help homeowners struggling with threatened foreclosure.

“Foreclosures in Kent County right now are on the rise,” she said, adding that the staff of six financial counselors at Home Repair Services at 1100 S. Division Ave. are convinced that the rate of foreclosures here is not easing up “because our unemployment rate has not eased.”

“It’s going to be difficult to slow this pace of foreclosure, until people are able to get back to work,” added Coffman.

Coffman said foreclosures have been “increasing as the unemployment in the state increased.”

“Nine and a half years ago, this program was just me, and now there are six of us. We’ve grown to try to meet the demand,” she said.

The staff at Home Repair Services and other nonprofit agencies such as Lighthouse Communities and the Inner City Christian Federation have been trained in the language of the mortgage industry, and try to use the Making Home Affordable Program enacted by the Obama administration to help homeowners. The state of Michigan also has a couple of relatively new programs of the same type, administered by the Michigan State Housing Development Authority, which received $498 million in federal funds.

The variety of programs, in essence, generally tries to reduce mortgage payments by modifying the interest rate, and if that doesn’t work, by extending the repayment schedule to 40 years or deferring payment on part of the principal.

The programs generally pertain to mortgages taken out before 2009, with a principal balance under $729,000, and, said Coffman, “You have to be facing some kind of hardship that prevents you from making your current payments at the current level.”

The bursting of the housing bubble, which dropped home values, and the loss of so many jobs combined to create the difficulties facing both homeowners and the home-lending industry, according to Pava Leyrer, president-elect of the Michigan Mortgage Professionals Association and owner of a brokerage in Grandville: Heritage National Mortgage.

However, Leyrer blames overreaction by the government, which is resulting in “billions of dollars” wasted on programs to help strapped homeowners. She also complains that there is “no accountability” required on the part of the mortgage institutions that are participating in the programs.

“All the government does is send money to banks and very little gets done, and if there is no accountability for that money, then what difference does it make?” said Leyrer.

The government “came out with programs for people under water (owing more on their mortgage than their house is now worth), but if you’re under water, giving them a few thousand dollars isn’t going to help. You’re too far under,” said Leyrer.

Coffman said the federal programs to help homeowners with mortgage problems do include financial incentives for the mortgage company, although she was not able to state how much the incentives are. While the programs are optional for the lenders, and while a lot participate, she said, most that do are “local state banks.” Some of the largest national lenders have not signed up yet, she said.

Coffman indicated that the programs are attractive to the mortgage holders if they can help prevent a foreclosure, because “foreclosure is an expensive process.”

Leyrer maintains the federal programs were enacted “without enough thought in them and without enough advice and information from the people who actually have to work with these programs,” she said, and the result has harmed consumers.

Since January, according to Leyrer, much tighter government regulations have increased paperwork, disclosures and reporting and thus increased costs for the mortgage industry by 37 percent.

“I can’t afford to absorb it,” she said. “It gets passed through. Where I used to approve nine out of 10 loans, or get approval for them, we are looking at three to four out of 10,” she said.

“No one will help them reduce their payments,” she added.

Ironically, mortgage interest rates are at historic lows — as little as 4.25 percent on a 30-year mortgage and 3.75 percent on a 15-year, according to David R. Ondersma, vice president of retail lending at Macatawa Bank in Hudsonville.

Leyrer said she has “seen people that deserved a loan and would be willing to pay back the entire balance, even under water, and could reduce their current payment by over $300 a month, be turned away.”

In the aftermath of the mortgage meltdown, requirements are now so high that even some “cream of the crop” borrowers no longer qualify for mortgages, said Leyrer.

“It’s nearly impossible now to figure out who’s truly good and who’s not,” she said, adding that even credit scores aren’t reliable anymore. “You have people with bankruptcies that can have 700 scores,” said Leyrer.

“They say you can create non-traditional credit, she said, “but the government has made it so expensive and the liability so great that no one wants to take those risks any longer,” said Leyrer.

“I think the federal program has had difficulties, definitely in its implementation,” said Coffman, noting that this is the first time the government has enacted a national program like HAMP, HARP and UP.

“This is just unprecedented,” she said, adding that the rules “have changed quite regularly since the year and a half this has been implemented.”

Individuals with mortgage problems must apply to their lender for the government programs, and the applications can often be from 35 to 50 pages in length with all the documents that are required, said Coffman. Borrowers’ interest in government help with mortgages has created application log jams at the banks, she said, to the point where some applications have been pending for as much as a year.

“However, I would say there have been modifications (to mortgages) through this program that I never would have seen before, and people have been able to keep their homes.”

Complicating the situation for consumers with mortgage problems are the numerous “scams” going on, said Coffman. These are for-profit businesses that frequently advertise on the Internet and charge people “from $900 to up to $2,500 to assist them in their applications to mortgage companies” for the government programs.

The businesses that are charging fees for the same assistance available free from Home Repair Services, Lighthouse Communities and Inner City Christian Federation “are promising guarantees — they’re promising results. They’re promising a modification (to the mortgage), saying your mortgage company has to do a modification. The mortgage company doesn’t have to do anything,” said Coffman.

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