The Arizona Republic - April 2007
The number of Valley residents who lost their home to foreclosure spiked more than tenfold in the past year as more and more homeowners fell behind on their mortgages.
The problem may soon get worse. Mortgage delinquencies hit a four-year high last month.
Slower homes sales, dips in housing appreciation and homeowners unable to keep up with rising subprime mortgage payments are all behind the jump in foreclosures.
The Valley's housing market could take a hit if lenders try to resell foreclosed homes quickly by cutting prices. Too many foreclosures in one neighborhood can pull the area's home values down."Our economy isn't bad, but foreclosures will continue to rise," said Jay Butler, director of realty studies at Arizona State University Polytechnic. "The fallout from the subprime market is just beginning.
"Last month, 553 Valley families lost their homes, according to the Information Market, a property-record research firm. At the same time, 1,705 homeowners got notices from their lenders that they were at least three months behind on their mortgage.
In March 2006, 782 homeowners were delinquent, but only 40 houses were taken back by lenders and sold at a foreclosure or trustee sale.
The reason: The then-hot housing market allowed homeowners in trouble to sell, refinance or find a way to make up what they owed.
Houses are now selling much more slowly, with a record 50,000 of them on the market in metropolitan Phoenix. Housing appreciation has been flat or has fallen in many parts of the Valley during the past year.
"Many homeowners who bought at the peak and are now struggling may just end up walking away from their houses," said Margie O'Campo de Castillo of Arizona Dream Realty.
"People who bought new homes on the Valley's fringes a few years ago are particularly having trouble selling for what they owe now."
Some hit harder
Homeowners with subprime loans are struggling the most. And most don't have the best credit, which is why they had to go with the higher-interest-rate loans.
Economists are concerned that many people stretched their incomes to get into those loans and lenders looked the other way to make the deal. Heather Ferguson thought she was getting a low-rate mortgage when she bought her Fountain Hills home in 2005.
"I wasn't a real estate expert, but I had decent credit and could afford the payments on a 6.5 percent loan," she said.
But after waiting for her loan broker for four hours at the title agency, she ended up signing for a subprime loan that started with an 8.5 percent interest rate that has now climbed to almost 12 percent. Her payment went from $980 to $1,680.
She fell behind last year, and her lender sent her a notice it was going to foreclose. Ferguson got help and is working to refinance out of a subprime loan to keep her home.
The first thing homeowners should do when they fall behind is alert their lender and try to get help, experts say.
"We call it ostrich syndrome," said Diane Drain, a Phoenix real estate attorney. "They put their heads in the sand until a few days before their house is going to be auctioned off. Then it's too late, and they can lose any equity they had and get a big black mark on their credit record."
Facing reality
People behind on their mortgages are often dealing with other financial or personal problems and are in denial, experts say.
"They think the Valley's housing market a few years ago was normal," said Joann Hauger of the non-profit group Community Housing Resources of the Arizona. "Struggling homeowners shouldn't think those price run-ups are going to return and save them.
"In metro Phoenix, foreclosures are still low compared with other states, like Florida and Michigan, which lead the nation in foreclosures.
What is helping Arizona offset pain from foreclosures and more slowing in the housing market is job growth.
University of Arizona economist Marshall Vest said the state's economy is still strong but won't get the boost from housing it did during the past few years.
