The number of petitions to foreclose, the first step in the foreclosure process taken by lenders, rose 70 percent in the Bay State in 2006 to 18,926 from 11,155 in 2005, according to Banker & Tradesman’s parent company, The Warren Group, which tracks the petitions filed at Massachusetts Land Court.
Foreclosure activity in Massachusetts spiked last year, alarming housing advocates and foreclosure prevention counselors, many of whom are calling for more regulation of the mortgage industry.
Lenders filed 18,926 petitions to foreclose in Massachusetts, a 70 percent increase from 2005 when 11,155 petitions were filed, according to The Warren Group. Foreclosure filings jumped sharply on Cape Cod, portions of southeastern and central Massachusetts, as well as Essex and Suffolk counties. The Warren Group, parent company of Banker & Tradesman, tracks foreclosure petitions filed in Massachusetts Land Court.
The state also saw a dramatic jump in foreclosure auctions. The number of legal notices advertising imminent foreclosure auctions throughout the Bay State rose 46 percent in 2006 compared with 2005, The Warren Group reported today.
Some housing experts attribute the surge in foreclosure activity to the increasing use of non-traditional loan products, including interest-only and option-payment adjustable-rate mortgages, which have helped lower-income borrowers purchase homes in recent years.
The slowing sales and a 6 percent drop in median home values statewide last year has also hurt struggling homeowners trying to refinance their loans or sell their homes.
Foreclosure prevention counselors say they are encountering homeowners who have fallen behind on mortgage payments and refinanced into loans with even riskier terms. State regulators also are finding more and more cases in which mortgage brokers have falsely stated incomes on home loan applications to qualify borrowers for loans.
“The number of scam artists and sharks that are in the water who not only just send out a letters, they call repeatedly, they knock on people’s doors, they make it extremely difficult – especially for vulnerable people – to say ‘no’ to their offers. And then once they open the door, they get them in the most horrific loans,” said Pam Parker, a foreclosure prevention counselor with Housing Assistance Corp., a regional nonprofit group serving Cape Cod.
Cape Cod saw foreclosure filings jump 94 percent last year. A total of 910 petitions to foreclose were filed in Barnstable County compared to 470 in 2005.
Parker said the number of borrowers calling her for assistance has tripled. Many of the homeowners Parker is hearing from have subprime loans and don’t have the incomes to keep up with monthly payments.
Not all petitions to foreclose result in actual foreclosures. The lender, as part of the first step in the process, files a petition to foreclose in Massachusetts Land Court after a borrower falls behind on monthly mortgage payments.
Some homeowners eventually refinance their mortgage loans, work out a payment plan or sell their homes, and the foreclosure case is dismissed. Less than half of the cases actually get to the stage where the lender advertises a property auction.
Steve Bennett, a counselor for ESAC, a Jamaica Plain-based nonprofit that helps homeowners who are facing foreclosure, said many of the homeowners who contacted him in the past were struggling to keep up with mortgage payments because of a job loss, temporary illness or divorce.
But today, many of the homeowners he’s encountering are in trouble because of the type of loans they have.
“What I’m seeing is that it is a lot more loan-product driven,” said Bennett, who noted that most of the delinquencies are on loans that are only six to 24 months old.
In Boston, lenders filed 1,711 petitions to foreclose last year, an 83 percent increase from the prior year when 937 petitions were filed, according to The Warren Group. Bennett said he has seen numerous troubled borrowers from Dorchester, Mattapan, Hyde Park and Roxbury.
Bristol, Essex and Worcester counties saw foreclosure activity escalate 75 percent or more last year. A total of 1,822 foreclosure petitions were filed in Bristol County, up 87 percent from 2005.
In Essex County, 2,307 foreclosure petitions were filed, a 75 percent increase from a year earlier, and in Worcester County 2,914 petitions were submitted, representing a 75.4 percent increase from the 1,661 petitions filed in 2005.
“We need to take action quickly to stem foreclosures and to address the predatory and other bad lending practices that are contributing to it,” Joseph Kriesberg, president of the Massachusetts Association of Community Development Corporations, said at a public forum last week.
‘Easiest Way Out’
A significant number of the borrowers Bennett has met recently have so-called 80-20 loans. With those loans, a borrower has a first mortgage covering 80 percent of the purchase of price and a second mortgage for the remaining 20 percent. The loans are structured to eliminate the borrower’s need to pay private mortgage insurance, which is required with most loans in which the down payment is less than 20 percent of the home’s value. But borrowers with little or no equity in their homes are vulnerable to foreclosure when the loan’s interest rate changes or if their ability to repay the loan changes.
The first loan typically has a low fixed-interest rated for two years and then converts to an adjustable-rate mortgage, while the second loan either features a very high interest rate or a balloon feature, explained Bennett.
“A lot people who bought in 2004 or 2005 managed to survive. But when the mortgage [rate] resets after the two-year period, they’re running into problems,” he said.
Bennett said ESAC, which stands for Ensuring Stability Through Action in Our Community, is also encountering low-income homeowners who clearly can’t afford the loans they’ve received because unscrupulous mortgage brokers have falsified their incomes on applications. Recently, Bennett met a woman who relies on disability payments with an income of about $12,000 to $13,000 annually who qualified to purchase two homes. She has mortgage loans totaling $950,000.
“What we’re seeing is mortgage brokers that are putting in incomes that are in no way consistent with actual incomes so as to qualify [borrowers] for loans,” said Bennett. “A lot of them [homeowners] are plain flabbergasted that they can’t make payments.”
William Eastty, vice president of residential mortgage at Crescent Credit Union in Brockton and chairman of the Brockton Housing Partnership, agrees that the recent foreclosure activity seems to be product-driven.
The Brockton Housing Partnership, a coalition of lenders and nonprofits on the South Shore, recently created a task force that is working to educate borrowers about their loans through church groups, the business community and social organizations.
Eastty said the goal is to help homeowners with 80-20 loans and interest-only loans understand what will happen as interest rates adjust, and hopefully help them refinance into more conventional loans. The partnership is helping borrowers restructure their mortgages through a lending program offered by MassHousing that provides long-term fixed interest rates.
“It’s imperative that we catch the people prior to them falling into late payments. Once that happens it’s harder to refinance,” he said. “We understand that it’s a concern and we’re trying to address it as quickly as we can because it affects obviously more than just the person that gets foreclosed on.”
Various groups, including the Massachusetts Affordable Housing Alliance and the Massachusetts Mortgage Association, have filed legislation to protect homeowners by require the licensing of mortgage loan officers. Currently, mortgage companies – but not individual mortgage originators – are required to be licensed.
Lending practices are routinely scrutinized by the Massachusetts Community and Banking Council, which just last week released a report showing that higher-cost loans were concentrated disproportionately in Bay State areas with greater numbers of minorities and residents with low incomes.
The report also revealed that the share of higher-cost loans for upper-income blacks and Latinos in Boston who were earning more than $152,000 was more than six times greater than for whites with comparable incomes.
One out of every four home-purchase loans in Boston and in Massachusetts carried high annual percentage rates in 2005, according to the report.
Bennett, who has worked as a foreclosure counselor at ESAC for nearly eight years, said in the past his organization could help homeowners who were in danger of losing their homes negotiate some type of payment plan with the lender. But now, Bennett is seeing low-income borrowers who, because of the hefty debt they’ve acquired, have no hope of remaining in their homes.
“Rather than finding ways to keep them in their homes, which is something we pride ourselves in doing, we had to instead find the easiest way out of their homes,” he said.
Parker, of Housing Assistance Corp., or HAC, is confronting the same situation. She said in the past she could work out a repayment plan, and HAC could provide some funds to cover some of the missed mortgage payments.
But now, even if HAC provides money to make up for missed payments, borrowers don’t have the incomes to continue paying the loan. And with the real estate market softening and home values falling, some homeowners who have refinanced are finding that they have completely stripped the equity out of their homes and can’t easily sell their home.
