State foreclosures for August up 126%
Nathan Hurst / The Detroit News
The number of Michigan homes taken by foreclosure was up 126.86 percent in August over the same month last year.
In total, 15,565 foreclosure filings were made in the state last month. The state's foreclosure rate of one for every 288 households ranks sixth in the nation, according to data being released today by RealtyTrac, an Irvine, Calif., firm that tracks such transactions across the country.
Michigan placed behind Nevada, California, Florida, Georgia and Ohio. The bulk of the state's filings were in Metro Detroit counties.
In Wayne County, there were 9,615 foreclosure filings in August, one for every 87 households, ranking the county fourth among the nation's metro areas. This was up from 8,683 such filings in July, a 10.7 percent increase, and 3,068 filings in August 2006, a 213 percent increase.
In Oakland County, there were 864 filings last month, one for every 601 households, down from 1,105 in July, a 21.8 percent drop, but up from 726 in August of last year, a 19 percent increase.
In Macomb County, there were 1,506 filings, one for every 230 households, up from 1,348 in July, an 11.7 percent increase, and up from 584 in August of last year, a 157.9 percent increase.
In Livingston County, there were 167 filings, one for every 422 households, up from only 8 in July, a massive 1,987.5 percent increase, and up from 61 in August of last year, a 173.8 percent increase.
Tuesday, September 18, 2007
House prices tumble 18%
House prices tumble 18%
Glut, foreclosures push Metro values down from '04 peak
Nathan Hurst / The Detroit News
WARREN
A glut of homes on the market combined with a sharp rise in foreclosure sales have driven Metro Detroit home prices down 17.7 percent since their peak three years ago, according to new data.
The region's median home price -- half the homes sold for less, and half sold for more -- fell from $188,275 in August 2004 to $154,919 in August 2007, according to data from Realcomp Inc., Metro Detroit's largest multiple listing service.
In Wayne County, the drop has been a staggering 35.6 percent.
Experts say that until the supply of homes for sale is significantly reduced, prices will continue to drop.
"The low prices are changing attitudes on both sides of the market," said Steve Cole, an agent at Weir Manuel Realtors in Birmingham. "Sellers are being very unrealistic about what they're expecting to sell for; everyone thinks their house is the exception to the rule. Buyers are also expecting to have an offer at half the asking price accepted."
The impact of falling home prices is widespread. For homeowners without equity, it can mean being "upside down" on their mortgages, owing more than their home is worth. For home sellers in that position, it means bringing cash to the closing just to pay off the loan. For sellers who saw their homes as retirement nest eggs, it means a lower return on their investment. And dwindling values means many homeowners can no longer borrow against their equity for major home repairs or purchases.
The low prices have created an upside: For those in the market for a house, there are plenty of good deals in every price range in every community.
Home investment shrinks
Count John and Dana Declark of Warren among those who have seen their home investment shrink. Back in 1984, the Declarks bought their modest three-bedroom home not only to provide a roof over their family's heads, but also as a retirement nest egg.
One day, they planned to turn their property into enough cash to build their dream home in Lapeer County.
Just a few years ago, the value of their home seemed to grow by the day. Today, the Declarks have their house up for sale for $162,900 -- more than $10,000 less than its estimated worth just three years ago.
"We decided now is the time," Dana Declark said. "Values are going down, people are losing their jobs. Looking at how many houses are for sale around here, we figured it's now or later, when it could be worse."
State leads price decline
Michigan, with its economy battered by the downturn in the auto industry, has led the way in the decline of home prices. The housing slowdown that started here in 2005 hit the rest of the nation this year, and now median prices are falling in markets across the country. The latest Standard & Poor's/Case-Schilling housing price report showed the national median home price in the second quarter of this year was down more than 3 percent from the same period in 2006.
A rash of foreclosure sales in Metro Detroit in the past year has skewed the sales prices downward, explained Francine Green, director of marketing for Realcomp. Foreclosed homes usually sell for much less than their typical market value, she noted.
Nonetheless, foreclosure sales drag down the value of other homes in a given neighborhood, as assessments are largely based on how much similar properties in an area sold for.
In Wayne County, 305 homes that were sold in August, or 18.4 percent of the county's total, were foreclosure sales, the Realcomp report said. That compares with 10.2 percent in August 2006.
It ultimately will take a critical mass of homeowners willing to sell low to significantly reduce the supply of homes for sale, which would then start driving prices back up.
"The only way this gets solved is by having a lot of people taking a huge hit in their home prices," said Don Grimes, a senior economic research specialist at the University of Michigan. "Until people make that decision, it'll just keep dragging on and on."
Mortgage exceeds worth
For Mary McKenzie of Detroit, the slump in home values has cut into her greatest source of personal wealth.
The 64-year-old elementary school secretary bought her southwest Detroit home in 1974 and worked diligently with her husband to pay off the mortgage. When she needed money to pay off mounting medical bills for her family, she leveraged some of the house's equity to provide the extra cash she needed.
But falling prices in her neighborhood have put her in a situation that's become common: She now owes more on her mortgage than her house is worth.
McKenzie owes nearly $59,000, but similar homes for sale in her neighborhood have asking prices for well below $50,000. With payments on her adjustable-rate mortgage set to jump for a third time next year, she's now considering walking away from the place she's called home for more than 30 years.
"The house was a financial foundation," McKenzie said. "Now, I feel like that's been taken away from me. I couldn't get anywhere near enough money to pay it off if I tried to sell it."
A buyer's market
While home sellers suffer, times couldn't be better for home buyers, who have their pick of hundreds of houses at bargain prices, in virtually every community in Metro Detroit.
"There are factors coming together that are really good for people looking for an opportunity," Grimes said. "If the house prices come down enough, people who are forced to be renters now can actually afford to buy them. "
Jesse Yates has joined the hunt. The 28-year-old marketing consultant from Rochester Hills is looking for a condominium in Detroit -- one that's closer to his office and nightlife spots. A self-described bargain shopper, Yates said he's looking at used condos rather than new, because he feels he'll have a better chance of negotiating a good deal.
"I'm on the right side of the bargaining table," Yates said. "People are practically begging you to buy their place. I'm feeling pretty good that whatever I end up buying will be a good deal."
Couple's return is timely
Alan and Lauren Ducharme of New York City are betting low prices will yield them a big home with a small price tag in Brighton, where they're returning to be closer to family. The Ducharmes, who telecommute with East Coast technology firms, weren't planning on returning to Michigan for a few more years, but decided it was the right time for a good deal.
Looking around their target neighborhoods in Brighton, the couple is confident they'll be able to shave $15,000 to $20,000 off asking prices simply by waiting.
"We've been keeping our eyes on a few homes and seeing how long they're lingering," Alan Ducharme said. "We're betting that if we wait until the right time, we can drive a hard bargain. They'll get sick of that 'For Sale' sign eventually."
The one downside right now for home buyers is the credit crunch that has lenders tightening their requirements for mortgages. But those with good credit and a small down payment shouldn't have any problems getting a loan.
Prices will continue to drop
Bargains for buyers will be prevalent through at least the end of the year, according to the National Association of Realtors, which estimates that average home prices nationwide will drop another 1.7 percent by January.
Grimes said the Metro Detroit housing market likely will have its low point sometime in the next two or three years. In the meantime, he suggests homeowners put the current situation in perspective.
"We've seen sharper (home price) declines in other parts of the country -- California, Florida, D.C.," he said. "And the fact is that nobody's fallen back to (1990s) levels. That would have really hurt."
Glut, foreclosures push Metro values down from '04 peak
Nathan Hurst / The Detroit News
WARREN
A glut of homes on the market combined with a sharp rise in foreclosure sales have driven Metro Detroit home prices down 17.7 percent since their peak three years ago, according to new data.
The region's median home price -- half the homes sold for less, and half sold for more -- fell from $188,275 in August 2004 to $154,919 in August 2007, according to data from Realcomp Inc., Metro Detroit's largest multiple listing service.
In Wayne County, the drop has been a staggering 35.6 percent.
Experts say that until the supply of homes for sale is significantly reduced, prices will continue to drop.
"The low prices are changing attitudes on both sides of the market," said Steve Cole, an agent at Weir Manuel Realtors in Birmingham. "Sellers are being very unrealistic about what they're expecting to sell for; everyone thinks their house is the exception to the rule. Buyers are also expecting to have an offer at half the asking price accepted."
The impact of falling home prices is widespread. For homeowners without equity, it can mean being "upside down" on their mortgages, owing more than their home is worth. For home sellers in that position, it means bringing cash to the closing just to pay off the loan. For sellers who saw their homes as retirement nest eggs, it means a lower return on their investment. And dwindling values means many homeowners can no longer borrow against their equity for major home repairs or purchases.
The low prices have created an upside: For those in the market for a house, there are plenty of good deals in every price range in every community.
Home investment shrinks
Count John and Dana Declark of Warren among those who have seen their home investment shrink. Back in 1984, the Declarks bought their modest three-bedroom home not only to provide a roof over their family's heads, but also as a retirement nest egg.
One day, they planned to turn their property into enough cash to build their dream home in Lapeer County.
Just a few years ago, the value of their home seemed to grow by the day. Today, the Declarks have their house up for sale for $162,900 -- more than $10,000 less than its estimated worth just three years ago.
"We decided now is the time," Dana Declark said. "Values are going down, people are losing their jobs. Looking at how many houses are for sale around here, we figured it's now or later, when it could be worse."
State leads price decline
Michigan, with its economy battered by the downturn in the auto industry, has led the way in the decline of home prices. The housing slowdown that started here in 2005 hit the rest of the nation this year, and now median prices are falling in markets across the country. The latest Standard & Poor's/Case-Schilling housing price report showed the national median home price in the second quarter of this year was down more than 3 percent from the same period in 2006.
A rash of foreclosure sales in Metro Detroit in the past year has skewed the sales prices downward, explained Francine Green, director of marketing for Realcomp. Foreclosed homes usually sell for much less than their typical market value, she noted.
Nonetheless, foreclosure sales drag down the value of other homes in a given neighborhood, as assessments are largely based on how much similar properties in an area sold for.
In Wayne County, 305 homes that were sold in August, or 18.4 percent of the county's total, were foreclosure sales, the Realcomp report said. That compares with 10.2 percent in August 2006.
It ultimately will take a critical mass of homeowners willing to sell low to significantly reduce the supply of homes for sale, which would then start driving prices back up.
"The only way this gets solved is by having a lot of people taking a huge hit in their home prices," said Don Grimes, a senior economic research specialist at the University of Michigan. "Until people make that decision, it'll just keep dragging on and on."
Mortgage exceeds worth
For Mary McKenzie of Detroit, the slump in home values has cut into her greatest source of personal wealth.
The 64-year-old elementary school secretary bought her southwest Detroit home in 1974 and worked diligently with her husband to pay off the mortgage. When she needed money to pay off mounting medical bills for her family, she leveraged some of the house's equity to provide the extra cash she needed.
But falling prices in her neighborhood have put her in a situation that's become common: She now owes more on her mortgage than her house is worth.
McKenzie owes nearly $59,000, but similar homes for sale in her neighborhood have asking prices for well below $50,000. With payments on her adjustable-rate mortgage set to jump for a third time next year, she's now considering walking away from the place she's called home for more than 30 years.
"The house was a financial foundation," McKenzie said. "Now, I feel like that's been taken away from me. I couldn't get anywhere near enough money to pay it off if I tried to sell it."
A buyer's market
While home sellers suffer, times couldn't be better for home buyers, who have their pick of hundreds of houses at bargain prices, in virtually every community in Metro Detroit.
"There are factors coming together that are really good for people looking for an opportunity," Grimes said. "If the house prices come down enough, people who are forced to be renters now can actually afford to buy them. "
Jesse Yates has joined the hunt. The 28-year-old marketing consultant from Rochester Hills is looking for a condominium in Detroit -- one that's closer to his office and nightlife spots. A self-described bargain shopper, Yates said he's looking at used condos rather than new, because he feels he'll have a better chance of negotiating a good deal.
"I'm on the right side of the bargaining table," Yates said. "People are practically begging you to buy their place. I'm feeling pretty good that whatever I end up buying will be a good deal."
Couple's return is timely
Alan and Lauren Ducharme of New York City are betting low prices will yield them a big home with a small price tag in Brighton, where they're returning to be closer to family. The Ducharmes, who telecommute with East Coast technology firms, weren't planning on returning to Michigan for a few more years, but decided it was the right time for a good deal.
Looking around their target neighborhoods in Brighton, the couple is confident they'll be able to shave $15,000 to $20,000 off asking prices simply by waiting.
"We've been keeping our eyes on a few homes and seeing how long they're lingering," Alan Ducharme said. "We're betting that if we wait until the right time, we can drive a hard bargain. They'll get sick of that 'For Sale' sign eventually."
The one downside right now for home buyers is the credit crunch that has lenders tightening their requirements for mortgages. But those with good credit and a small down payment shouldn't have any problems getting a loan.
Prices will continue to drop
Bargains for buyers will be prevalent through at least the end of the year, according to the National Association of Realtors, which estimates that average home prices nationwide will drop another 1.7 percent by January.
Grimes said the Metro Detroit housing market likely will have its low point sometime in the next two or three years. In the meantime, he suggests homeowners put the current situation in perspective.
"We've seen sharper (home price) declines in other parts of the country -- California, Florida, D.C.," he said. "And the fact is that nobody's fallen back to (1990s) levels. That would have really hurt."
Wednesday, September 12, 2007
Foreclosures hit another record high
Foreclosures hit another record high
Associated Press
Michigan foreclosure rate ranks 3rd in nation
Report: Countrywide has begun layoffs
Lenders to offer loan aid
New data reveals severity of home sales slump
Pontiac Town Hall meeting focuses on foreclosures
Toll Bros. warns of double-digit drop in home building revenue
Livingston home sales fall while area climbs
Mortgages rates drop , good news for homebuyers
Building slump grows in SE Mich.
Existing home sales at slowest pace in more than 4 years
Increasingly rare large tracts sell fast despite ailing economy
Stocks retreat after Fed warns of more housing weakness Biz-Metro-real-estate
Related Articles and Links
WASHINGTON -- The number of homeowners receiving foreclosure notices hit a record high in the spring, driven by problems with subprime mortgages.
The Mortgage Bankers Association reported today that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high.
The delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring, rising to 5.12 percent of all loans, up nearly three-fourths of a percentage point from the same period a year ago.
Associated Press
Michigan foreclosure rate ranks 3rd in nation
Report: Countrywide has begun layoffs
Lenders to offer loan aid
New data reveals severity of home sales slump
Pontiac Town Hall meeting focuses on foreclosures
Toll Bros. warns of double-digit drop in home building revenue
Livingston home sales fall while area climbs
Mortgages rates drop , good news for homebuyers
Building slump grows in SE Mich.
Existing home sales at slowest pace in more than 4 years
Increasingly rare large tracts sell fast despite ailing economy
Stocks retreat after Fed warns of more housing weakness Biz-Metro-real-estate
Related Articles and Links
WASHINGTON -- The number of homeowners receiving foreclosure notices hit a record high in the spring, driven by problems with subprime mortgages.
The Mortgage Bankers Association reported today that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high.
The delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring, rising to 5.12 percent of all loans, up nearly three-fourths of a percentage point from the same period a year ago.
Foreclosure, tax bill a 1-2 punch
Foreclosure, tax bill a 1-2 punch
September 9, 2007
BY SUSAN TOMPOR
The last thing somebody who couldn't pay the mortgage would expect is a tax document in the mail that proclaims they magically got an extra $20,000 in income they never touched.
But that's exactly the tortured tax picture that faces many troubled homeowners in Michigan and elsewhere.
Thousands of families could face an unexpected tax hit if they went through foreclosure, worked out some unusual deals with the bank to refinance or sold homes for less than the outstanding debt.
"This really adds insult to injury where someone is in a situation where they get hit with a tax bill on top of having to lose their house or refinance at a lower value," said U.S. Sen. Debbie Stabenow.
The Michigan Democrat told me during a phone interview that she'd like to see this unfair tax rule change by year-end. On Aug. 31, President George W. Bush gave his support to Stabenow's mortgage relief act as part of his package to assist homeowners.
It's one of those tax rules that not many people know about because home values have typically gone up, not down. Yet, it's a tax issue that now could have great impact on families throughout the country. It would be even more significant in Michigan where consumers are coping with a recession -- on top of a fallout in house prices.
Say a homeowner loses a job in Michigan, needs to move and has to sell the house for $80,000 instead of the $100,000 owed on the mortgage. If the bank forgives $20,000, as is possible in some cases, it's going to generate a 1099 tax form that has to be reported as income.
For many families, an extra $20,000 on that 1099 could mean that they've got to dish out an extra $3,000 or $5,000 or more in federal income taxes.
"The general rule is that cancellation of debt is taxable income," said Bob D. Scharin, RIA senior tax analyst from Thomson Tax & Accounting.
Or take another possibility. The family can no longer make the mortgage payments. So the family negotiates with the bank and attempts to do what's called a short sale -- or sell the property for less than the debt owed on the mortgage. The bank may forgive part of the loan. Again, though, we're looking at another tax hit.
Or how about a homeowner who is able to pay the mortgage at the initial adjustable rate? But then the rate readjusts upward significantly -- and suddenly the mortgage payment is unaffordable.
Say the homeowner would like to refinance.
But there's a snag. Some homes -- especially in some pockets of Michigan -- now are being valued below the original mortgage three, four or five years ago. So the house might be valued at $100,000 instead of $120,000.
And the homeowner might not have enough equity in the house to deal with the difference.
If the bank steps in and refinances the house at say $100,000 instead of $120,000, well, the homeowner still would run up against that tax hit.
"It's typically not a gift. It's considered income -- just like when you win a prize," said Gary Riedlinger, tax research manager for Yeo & Yeo PC in Saginaw.
Except nobody feels like a Lotto winner.
In some cases, consumers are able to avoid the tax hit.
"The one big exception is bankruptcy," said James Jenkins, president of Jenkins & Co., a tax firm in Southfield.
If the debt is discharged in bankruptcy, the tax isn't owed. Another option: Taxpayers could file a complicated tax form, Form 982, to show that they were insolvent -- or had more debts than assets.
"How's the average guy going to possibly know the rules on this?" Jenkins asked, noting that an experienced tax preparer could save some consumers money and avoid much of the tax.
But Jenkins agreed that the rules should be changed to help families during this mortgage mess.
"Sad to say, it's going to be a very common problem," Jenkins said. "You're not ending their misery if they're going to end up with a big, fat tax bill."
Stabenow told me that she's willing to make this a temporary change, possibly for a year or two, in order to get bipartisan support.
She also is willing to limit the tax change to the homeowner's primary residence.
Stabenow noted that many middle-class families have borrowed money to get into a house in a better school district -- and improve their situation.
"They have no control on the broader economy in Michigan," she said.
Stabenow said the banks support this idea because they don't make money foreclosing on homes.
Richard DeKaser, chief economist for National City Corp. in Cleveland, said lenders would have more flexibility in renegotiating terms and avoiding some foreclosures if some proposals went through, including a temporary freeze on the tax burden -- as Bush and Stabenow are proposing.
Changing the tax rules -- even just for a year or two -- won't get rid of the For Sale signs in everyone's neighborhood or cut off the wave of foreclosures. But Stabenow's plan certainly is a sensible, solid step toward fixing an unforeseen problem for many families.
September 9, 2007
BY SUSAN TOMPOR
The last thing somebody who couldn't pay the mortgage would expect is a tax document in the mail that proclaims they magically got an extra $20,000 in income they never touched.
But that's exactly the tortured tax picture that faces many troubled homeowners in Michigan and elsewhere.
Thousands of families could face an unexpected tax hit if they went through foreclosure, worked out some unusual deals with the bank to refinance or sold homes for less than the outstanding debt.
"This really adds insult to injury where someone is in a situation where they get hit with a tax bill on top of having to lose their house or refinance at a lower value," said U.S. Sen. Debbie Stabenow.
The Michigan Democrat told me during a phone interview that she'd like to see this unfair tax rule change by year-end. On Aug. 31, President George W. Bush gave his support to Stabenow's mortgage relief act as part of his package to assist homeowners.
It's one of those tax rules that not many people know about because home values have typically gone up, not down. Yet, it's a tax issue that now could have great impact on families throughout the country. It would be even more significant in Michigan where consumers are coping with a recession -- on top of a fallout in house prices.
Say a homeowner loses a job in Michigan, needs to move and has to sell the house for $80,000 instead of the $100,000 owed on the mortgage. If the bank forgives $20,000, as is possible in some cases, it's going to generate a 1099 tax form that has to be reported as income.
For many families, an extra $20,000 on that 1099 could mean that they've got to dish out an extra $3,000 or $5,000 or more in federal income taxes.
"The general rule is that cancellation of debt is taxable income," said Bob D. Scharin, RIA senior tax analyst from Thomson Tax & Accounting.
Or take another possibility. The family can no longer make the mortgage payments. So the family negotiates with the bank and attempts to do what's called a short sale -- or sell the property for less than the debt owed on the mortgage. The bank may forgive part of the loan. Again, though, we're looking at another tax hit.
Or how about a homeowner who is able to pay the mortgage at the initial adjustable rate? But then the rate readjusts upward significantly -- and suddenly the mortgage payment is unaffordable.
Say the homeowner would like to refinance.
But there's a snag. Some homes -- especially in some pockets of Michigan -- now are being valued below the original mortgage three, four or five years ago. So the house might be valued at $100,000 instead of $120,000.
And the homeowner might not have enough equity in the house to deal with the difference.
If the bank steps in and refinances the house at say $100,000 instead of $120,000, well, the homeowner still would run up against that tax hit.
"It's typically not a gift. It's considered income -- just like when you win a prize," said Gary Riedlinger, tax research manager for Yeo & Yeo PC in Saginaw.
Except nobody feels like a Lotto winner.
In some cases, consumers are able to avoid the tax hit.
"The one big exception is bankruptcy," said James Jenkins, president of Jenkins & Co., a tax firm in Southfield.
If the debt is discharged in bankruptcy, the tax isn't owed. Another option: Taxpayers could file a complicated tax form, Form 982, to show that they were insolvent -- or had more debts than assets.
"How's the average guy going to possibly know the rules on this?" Jenkins asked, noting that an experienced tax preparer could save some consumers money and avoid much of the tax.
But Jenkins agreed that the rules should be changed to help families during this mortgage mess.
"Sad to say, it's going to be a very common problem," Jenkins said. "You're not ending their misery if they're going to end up with a big, fat tax bill."
Stabenow told me that she's willing to make this a temporary change, possibly for a year or two, in order to get bipartisan support.
She also is willing to limit the tax change to the homeowner's primary residence.
Stabenow noted that many middle-class families have borrowed money to get into a house in a better school district -- and improve their situation.
"They have no control on the broader economy in Michigan," she said.
Stabenow said the banks support this idea because they don't make money foreclosing on homes.
Richard DeKaser, chief economist for National City Corp. in Cleveland, said lenders would have more flexibility in renegotiating terms and avoiding some foreclosures if some proposals went through, including a temporary freeze on the tax burden -- as Bush and Stabenow are proposing.
Changing the tax rules -- even just for a year or two -- won't get rid of the For Sale signs in everyone's neighborhood or cut off the wave of foreclosures. But Stabenow's plan certainly is a sensible, solid step toward fixing an unforeseen problem for many families.
Mortgages eating up incomes
Mortgages eating up incomes
September 12, 2007
BY RUBY L. BAILEY and SUZETTE HACKNEY
When Chris Gowman's employer was sold in 2001, he was offered a $4,000-a-month pension.
The former ANR Pipeline worker took it, but ever since, he's had to spend half of it to cover the mortgages on his homes in Roseville and Harbor Springs.
"I'm not living the high life by any stretch," said Gowman, 58, who drives a 1991 Oldsmobile 88. "I have to live a very frugal life to survive."
Gowman is among the 26.4% of Michiganders who spent 35% or more of their income on a mortgage in 2006, according to U.S. Census Bureau estimates released today.
Nationally, the number was higher: 28% of mortgage holders spent what some would call too-healthy chunks of their income to put a roof over their heads.
Experts say they think many in Michigan are like Gowman -- homeowners whose mortgages consumed larger portions of their income as their wages shrank.
And with many likely to have at least one credit card and a car note, householders' total debt could eat much more of their incomes. That leaves the most cash-strapped at risk of losing their homes, said Pava Leyrer, president of the Lansing-based Michigan Mortgage Brokers Association.
"If their hours are cut or they experience a job loss, they have to choose one debt or another," Leyrer said. "Just because you're told yes" for a mortgage "doesn't mean you should take it."
Michigan outpaces nation
The drive to own a home remains strong in Michigan. The state's homeownership rates outpaced the nation's from 2000 to 2006. And at 75%, metro Detroit had one of the highest rates among the 20 largest metro areas.
But in Detroit, an estimated 46% of residents spent 35% or more of their income on mortgages in 2006. About a third or more of residents of Dearborn, Pontiac, Shelby Township, Southfield, Warren and West Bloomfield also spent that much.
In poorer communities, the high percentages could spell trouble, though "it doesn't send up the same red flag in an affluent suburb," said Greg McBride, senior financial analyst for Bankrate.com. "Thirty-one percent of income in a high-income neighborhood leaves a lot remaining."
The Detroit area's building boom of the late 1990s and early 2000s likely contributed to the large income chunks going to mortgages, said Kurt Metzger, a demographer and researcher for the United Way for Southeast Michigan.
Lenders relaxed rules of thumb, including that mortgage debt make up no more than 28% of the buyer's income.
"There's that great American Dream when people jump into these opportunities where they're spending a large percentage of their income on housing," Metzger said. "But that's when they're making money." Those with jobs and little or no debt can likely handle paying as much as 50% of their income for a mortgage, experts said.
"The big question is, 'What are the other debts that people are carrying?' " said Russell Martin, a Chicago-based mortgage broker who has Michigan clients. "Unless somebody is living really extravagantly, they should be able to afford 35% for their mortgage."
Finding an exit route
Financially stretched homeowners should first try to trim expenses -- cut the cell phone bill and stop dining out -- and perhaps get a second job, experts suggested. And, like Gowman, drive an older, paid-for car. If the risk of foreclosure looms, try to refinance to a better interest rate or sell if the payments get to be too much.
"They've got to find an exit route," said Keith Ernst, senior policy counselor for the Center for Responsible Lending in Durham, N.C.
But in Michigan, where property values are dropping and homes are sitting for months on the market, it could be tough.
"That's the troubling part," Ernst said. "The way out isn't clearly marked."
September 12, 2007
BY RUBY L. BAILEY and SUZETTE HACKNEY
When Chris Gowman's employer was sold in 2001, he was offered a $4,000-a-month pension.
The former ANR Pipeline worker took it, but ever since, he's had to spend half of it to cover the mortgages on his homes in Roseville and Harbor Springs.
"I'm not living the high life by any stretch," said Gowman, 58, who drives a 1991 Oldsmobile 88. "I have to live a very frugal life to survive."
Gowman is among the 26.4% of Michiganders who spent 35% or more of their income on a mortgage in 2006, according to U.S. Census Bureau estimates released today.
Nationally, the number was higher: 28% of mortgage holders spent what some would call too-healthy chunks of their income to put a roof over their heads.
Experts say they think many in Michigan are like Gowman -- homeowners whose mortgages consumed larger portions of their income as their wages shrank.
And with many likely to have at least one credit card and a car note, householders' total debt could eat much more of their incomes. That leaves the most cash-strapped at risk of losing their homes, said Pava Leyrer, president of the Lansing-based Michigan Mortgage Brokers Association.
"If their hours are cut or they experience a job loss, they have to choose one debt or another," Leyrer said. "Just because you're told yes" for a mortgage "doesn't mean you should take it."
Michigan outpaces nation
The drive to own a home remains strong in Michigan. The state's homeownership rates outpaced the nation's from 2000 to 2006. And at 75%, metro Detroit had one of the highest rates among the 20 largest metro areas.
But in Detroit, an estimated 46% of residents spent 35% or more of their income on mortgages in 2006. About a third or more of residents of Dearborn, Pontiac, Shelby Township, Southfield, Warren and West Bloomfield also spent that much.
In poorer communities, the high percentages could spell trouble, though "it doesn't send up the same red flag in an affluent suburb," said Greg McBride, senior financial analyst for Bankrate.com. "Thirty-one percent of income in a high-income neighborhood leaves a lot remaining."
The Detroit area's building boom of the late 1990s and early 2000s likely contributed to the large income chunks going to mortgages, said Kurt Metzger, a demographer and researcher for the United Way for Southeast Michigan.
Lenders relaxed rules of thumb, including that mortgage debt make up no more than 28% of the buyer's income.
"There's that great American Dream when people jump into these opportunities where they're spending a large percentage of their income on housing," Metzger said. "But that's when they're making money." Those with jobs and little or no debt can likely handle paying as much as 50% of their income for a mortgage, experts said.
"The big question is, 'What are the other debts that people are carrying?' " said Russell Martin, a Chicago-based mortgage broker who has Michigan clients. "Unless somebody is living really extravagantly, they should be able to afford 35% for their mortgage."
Finding an exit route
Financially stretched homeowners should first try to trim expenses -- cut the cell phone bill and stop dining out -- and perhaps get a second job, experts suggested. And, like Gowman, drive an older, paid-for car. If the risk of foreclosure looms, try to refinance to a better interest rate or sell if the payments get to be too much.
"They've got to find an exit route," said Keith Ernst, senior policy counselor for the Center for Responsible Lending in Durham, N.C.
But in Michigan, where property values are dropping and homes are sitting for months on the market, it could be tough.
"That's the troubling part," Ernst said. "The way out isn't clearly marked."
Do's and dont's for fending off foreclosure
Do's and dont's for fending off foreclosure
Monday September 10, 6:00 am ET
Justin Harelik
Dear Bankruptcy Adviser,
I just received a notice of default letter from my mortgage lender that says my house will go to auction sale in four months. Can house still be sold by owner?
Dear Sue,
It appears that you are right in the beginning of the foreclosure process, but as long as the house is still in your name you can save it. While you need to be careful, you also need to act quickly. Four months can seem like a long time but it can go by in a flash. So let's get right down to what your options are.
7 possible do's when foreclosure looms:
1. Sell the property.
2. Work out a deal.
3. Refinance with a subprime lender.
4. File Chapter 7 bankruptcy.
5. File Chapter 13 bankruptcy.
6. Short sale/deed in lieu of foreclosure.
7. Walk away from the house.
1. Sell the property: If you can find a buyer before the house is auctioned, you can sell it and keep whatever equity still exists.
2. Work out a deal: Your lender may be willing to work with you, rather than lose money at a foreclosure sale.
3. Refinance with a subprime lender: Your credit is poor right now because of the mortgage delinquencies. This means most or all of the traditional banks will not work with you. However, if there is equity in the property, you may be able to find a lender who will refinance you -- at a higher-than-normal rate. These are called subprime loans, and they're increasingly common: About 20 percent of mortgages today are subprime.
4. File Chapter 7 bankruptcy: If you can't get caught up in time, you will not be able to keep the house -- but you'll generally be able to delay the foreclosure sale a month or even several months. Any remaining debt to the lender will be wiped out.
5. File Chapter 13 bankruptcy: If you can afford to make the future mortgage payments and the delinquent payments, too, file for a Chapter 13 bankruptcy. This is different than Chapter 7, in which assets are liquidated but debts are wiped clean. With Chapter 13, you keep your assets and, under court supervision, you repay your debts under a three-to-five-year plan.
6. Short sale/deed in lieu of foreclosure: A short sale takes place when the bank allows you to sell your property even though their mortgage won't be paid. Be careful -- the bank may allow the sale to go through, but only on the condition that you repay the deficiency. In a deed in lieu of foreclosure, the property is signed over to the bank in exchange for the bank giving up its rights against you. When might a bank agree to either of these? Lenders spend close to or more than $30,000 to foreclose on a property. Most lenders will consider these options to avoid foreclosure costs.
7. Walk away from the house: Pack your things and leave. The only issue remaining is whether your lender can sue you for any deficiency still owed after the sale, and that depends on the state you live in and the type of mortgage you have. You'd be wise to speak to an attorney before taking this step.
Any sale or transfer of property has tax consequences, including a foreclosure sale or a deed in lieu of foreclosure. Seeing an accountant is probably a good idea, as well.
Here are two options NOT to consider. In other words, they're scams.
2 don'ts when foreclosure looms:
1. Signing over your property title to another company: Some companies say that after the mortgage is current they will re-sign the property back over to you. This rarely happens. Instead, the company is likely to pull out equity, not make any mortgage payments and allow the property to be foreclosed. You will not be able to save the property from future foreclosures because the property is no longer in your name.
2. High-interest second mortgage: When a property has equity, there are companies that will give you a second mortgage, in an amount as high as 70 percent of the equity available. The interest rate could be as high as 18 percent and the fees can be exorbitant. They are hoping that you'll blow the money and default -- which allows them to take the property from you.
Sue, you have options, but you need to avoid the scams and act quickly if you want to have the best outcome. Delaying only makes foreclosure inevitable.
Monday September 10, 6:00 am ET
Justin Harelik
Dear Bankruptcy Adviser,
I just received a notice of default letter from my mortgage lender that says my house will go to auction sale in four months. Can house still be sold by owner?
Dear Sue,
It appears that you are right in the beginning of the foreclosure process, but as long as the house is still in your name you can save it. While you need to be careful, you also need to act quickly. Four months can seem like a long time but it can go by in a flash. So let's get right down to what your options are.
7 possible do's when foreclosure looms:
1. Sell the property.
2. Work out a deal.
3. Refinance with a subprime lender.
4. File Chapter 7 bankruptcy.
5. File Chapter 13 bankruptcy.
6. Short sale/deed in lieu of foreclosure.
7. Walk away from the house.
1. Sell the property: If you can find a buyer before the house is auctioned, you can sell it and keep whatever equity still exists.
2. Work out a deal: Your lender may be willing to work with you, rather than lose money at a foreclosure sale.
3. Refinance with a subprime lender: Your credit is poor right now because of the mortgage delinquencies. This means most or all of the traditional banks will not work with you. However, if there is equity in the property, you may be able to find a lender who will refinance you -- at a higher-than-normal rate. These are called subprime loans, and they're increasingly common: About 20 percent of mortgages today are subprime.
4. File Chapter 7 bankruptcy: If you can't get caught up in time, you will not be able to keep the house -- but you'll generally be able to delay the foreclosure sale a month or even several months. Any remaining debt to the lender will be wiped out.
5. File Chapter 13 bankruptcy: If you can afford to make the future mortgage payments and the delinquent payments, too, file for a Chapter 13 bankruptcy. This is different than Chapter 7, in which assets are liquidated but debts are wiped clean. With Chapter 13, you keep your assets and, under court supervision, you repay your debts under a three-to-five-year plan.
6. Short sale/deed in lieu of foreclosure: A short sale takes place when the bank allows you to sell your property even though their mortgage won't be paid. Be careful -- the bank may allow the sale to go through, but only on the condition that you repay the deficiency. In a deed in lieu of foreclosure, the property is signed over to the bank in exchange for the bank giving up its rights against you. When might a bank agree to either of these? Lenders spend close to or more than $30,000 to foreclose on a property. Most lenders will consider these options to avoid foreclosure costs.
7. Walk away from the house: Pack your things and leave. The only issue remaining is whether your lender can sue you for any deficiency still owed after the sale, and that depends on the state you live in and the type of mortgage you have. You'd be wise to speak to an attorney before taking this step.
Any sale or transfer of property has tax consequences, including a foreclosure sale or a deed in lieu of foreclosure. Seeing an accountant is probably a good idea, as well.
Here are two options NOT to consider. In other words, they're scams.
2 don'ts when foreclosure looms:
1. Signing over your property title to another company: Some companies say that after the mortgage is current they will re-sign the property back over to you. This rarely happens. Instead, the company is likely to pull out equity, not make any mortgage payments and allow the property to be foreclosed. You will not be able to save the property from future foreclosures because the property is no longer in your name.
2. High-interest second mortgage: When a property has equity, there are companies that will give you a second mortgage, in an amount as high as 70 percent of the equity available. The interest rate could be as high as 18 percent and the fees can be exorbitant. They are hoping that you'll blow the money and default -- which allows them to take the property from you.
Sue, you have options, but you need to avoid the scams and act quickly if you want to have the best outcome. Delaying only makes foreclosure inevitable.
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