County foreclosures on pace to exceed 2006 volume

Home foreclosures continue to rise in Greene County and throughout the country, but local bank officials say they haven’t seen a parallel spike in mortgage loan defaults.

Plenty of homeowners with adjustable-rate mortgages are, however, refinancing to sidestep higher monthly payments on the horizon when higher interest rates take effect.

As of Sept. 26, Greene County has seen more than 500 home foreclosures, according to records maintained by the Recorder of Deeds office. After just nine months, the county is poised to surpass last year’s total of 513 foreclosures.

In early September, the Mortgage Bankers Association reported that more borrowers nationwide are falling behind on their residential mortgages, with a delinquency rate for loans on one- to four-unit residential properties at 5.1 percent of all loans outstanding in the second quarter.

Mortgage bankers have strongly urged delinquent borrowers to contact their lenders and discuss alternatives to foreclosure before it’s too late. Some banks will arrange debt repayment plans. Others steer customers toward refinancing – typically to a more conservative, fixed-rate mortgage.

“The key is communication with your lender,” said Commerce Bank Regional President Bob Hammerschmidt. “Letting people know what has happened, how it’s going to affect the cash flow and then allowing the lender to help craft a plan to get beyond it.”

Best defense: prudent lending

Local bank executives say their home loan default rates have remained relatively stable amid a shaky mortgage market roiled by subprime lending, which has been blamed for the brunt of foreclosures sweeping the nation.

“Great Southern (Bank) has never taken part in subprime lending, and I would say that is about 90 percent of the reason why we aren’t seeing the numbers that maybe some (institutions) are,” said Bart Evans, director of residential lending for Great Southern.

Still, adjustable-rate and interest-only mortgages that gained popularity when interest rates dipped in 2004 and 2005 have proven problematic for some borrowers, many of whom are now selling their homes or turning to fixed-rate mortgages, Evans said.

“You get people that were able to afford these homes on these interest-only ARMs, and on $100,000, you’re talking a couple hundred bucks a month (when the interest rate increases),” he said. “That’s a lot. This is a monthly payment society.”

When interest rates dipped a few years ago, about a third of the home loans Great Southern originated were adjustable-rate mortgages, Evans said. Now, about 90 percent are 30-year fixed-rate mortgages or loans insured by the Federal Housing Administration, he said.

Empire Bank also stuck to its conventional lending practices at a time when many mortgage lenders seemed to be giving money to borrowers regardless of their credit rating or ability to repay the debt.

“The lender is doing a disservice to themselves and to the consumer if the lender helps the consumer get into a home that they arguably can’t afford,” said Joe McCarty, executive vice president at Empire Bank. “Probably more than 90 percent of the permanent home loans that we make are fixed-rate.”

Keeping borrowers afloat

While responsible lending practices appear to have kept home loan defaults relatively low at local banks, the institutions have plenty of experience helping borrowers weather financial straits caused by job loss, family issues or casualties.

“We do try to work with our customers who do get behind,” McCarty said. “We encourage them to call us if they’re struggling and talk with us about the possibility of restructuring the loan.”

Refinancing a loan sometimes means a lower rate for homeowners, McCarty said, noting that Empire also has allowed borrowers who have fallen behind on their mortgage payments to gradually pay off the delinquent balance.

Hammerschmidt said the goal is to keep borrowers in their homes and avoid foreclosure, which saddles lenders with unwanted real estate.

“Who wants to be in the business of foreclosing on somebody’s real estate?” he asked.

“It’s a loss on everybody’s part. Banks don’t make money by foreclosing. We just don’t believe it’s prudent to look at that as a primary or even secondary means for repaying a loan.

“I consider that a last resort.”