Debt, climbing interest boost foreclosure rates
04/03/2006 08:46:06 AM
Posted: Monday, April 03, 2006
CEDAR RAPIDS, Iowa (AP) -- Heavy credit burdens and rising interest rates are bearing down on many Iowans, fueling what many fear will be a trend in home foreclosures.
Foreclosures declined in 2005 in Linn and Johnson counties, as improving economic conditions eased the financial pressures that led to a surge in foreclosures in 2003 and 2004.
As economic conditions have improved, the Federal Reserve Board ratcheted interest rates higher for two years to keep the economy from overheating and causing inflation.
Just within the last year, Fed actions have boosted the rate to which many adjustable-rate mortgages are indexed by 1.16 percent to 3.347 percent. They have also boosted the Wall Street Journal prime rate, to which many home equity loans are indexed, by 1.75 percent to 7.5 percent.
Capt. John Stuelke of the Linn County Sheriffs Department, whose unit handles court-ordered sales of foreclosed property, said 2006 has started off with a bang. Fifty-eight special executions were issued to sell foreclosed homes in the first nine weeks of 2006. That is more than a fourth of the 212 served in all of 2005.
The pace of foreclosures is slower in Johnson County. Forty-three special executions were issued to sell property in 2005, according to Capt. Gayle Svatos of the Johnson County Sheriffs Department's civil division. She hasn't received the first batch for 2006.
"The adjustable-rate mortgages are starting to kick in," Stuelke said. "Somebody takes out an adjustable-rate mortgage three or four years ago at 4 percent, and now all of a sudden they're up at 7 to 8 percent, and that's a big difference."
Stuelke said summer is usually busiest for foreclosures. Many lenders don't like to force borrowers out during the holidays and cold of winter.
John Titler, a Cedar Rapids attorney specializing in debt and bankruptcy law, said homeowners in the worst shape are those with both a fixed-rate first mortgage and a variable-rate second mortgage.
Often, Titler said, the second mortgage was used to consolidate debts at a lower rate. The interest rate on the second mortgage is tied to short-term interest rates, and it rises more quickly than a simple adjustable-rate mortgage.
If the loans total more than the value of the property, as is often the case, the mortgage company is typically faced with losing money if the house is sold. The company may refuse to allow the house to be sold, or hold the debtor liable for any deficiency, plus court costs, attorney fees and other expenses. Such situations also limit the debtors options for refinancing the debt at a lower fixed interest rate.
"These situations, more often than the others, will lead to a bankruptcy filing," Titler said. Rising interest rates are just one factor driving the foreclosure trend. For Todd Griep, 32, of Cedar Rapids, the main factor was a legal problem, combined with no health insurance or financial cushion. Griep, who now works as a tire technician, has never borrowed much, but has at times lived paycheck to paycheck.
On Feb. 25, 2004, Griep was arrested for drunken driving, his third such violation. Griep began serving his sentence part time at the Oakdale Classification Center after the birth of his youngest child. He had to trade his full-time job for a part-time job, leaving almost no income after paying child support, utilities and legal expenses.
Off alcohol for two years, Griep is now seven to eight months behind on mortgage payments. A sheriff's sale, originally scheduled for this month, was recently moved back to September.
Realtor Rick Kullander of Re/Max Associates met Griep and his wife, Dawn, last fall when their finances were unraveling. Kullander wrote a letter to Griep's mortgage lender, asking it to waive interest because of the unusual circumstances. Todd Griep has also written to his lender and other parties.
Dawn Griep is trying to start her own business collecting small-claims judgments if she can raise the startup capital.
"You have a situation where, even though Todd originally owed about $93,000, because of the interest, fees, and penalties he owes about $100,000," Kullander said. If the house is sold for less than that amount, the bank -- or Griep -- can object.
Griep's lack of legal knowledge has left him feeling helpless, a situation Titler said is common among homeowners.
A frequent mistake homeowners make is failing to understand and exercise their limited legal rights in foreclosures, Titler said. For many, the most important may be the right to occupy their homes past the date of foreclosure.
Exercising that right can buy the homeowners six months in their houses even if they can't afford to make any payments. Smart debtors can use that time to save money for rental deposits or other housing arrangements.
AP-CS-04-03-06 0901EDT
Foreclosures declined in 2005 in Linn and Johnson counties, as improving economic conditions eased the financial pressures that led to a surge in foreclosures in 2003 and 2004.
As economic conditions have improved, the Federal Reserve Board ratcheted interest rates higher for two years to keep the economy from overheating and causing inflation.
Just within the last year, Fed actions have boosted the rate to which many adjustable-rate mortgages are indexed by 1.16 percent to 3.347 percent. They have also boosted the Wall Street Journal prime rate, to which many home equity loans are indexed, by 1.75 percent to 7.5 percent.
Capt. John Stuelke of the Linn County Sheriffs Department, whose unit handles court-ordered sales of foreclosed property, said 2006 has started off with a bang. Fifty-eight special executions were issued to sell foreclosed homes in the first nine weeks of 2006. That is more than a fourth of the 212 served in all of 2005.
The pace of foreclosures is slower in Johnson County. Forty-three special executions were issued to sell property in 2005, according to Capt. Gayle Svatos of the Johnson County Sheriffs Department's civil division. She hasn't received the first batch for 2006.
"The adjustable-rate mortgages are starting to kick in," Stuelke said. "Somebody takes out an adjustable-rate mortgage three or four years ago at 4 percent, and now all of a sudden they're up at 7 to 8 percent, and that's a big difference."
Stuelke said summer is usually busiest for foreclosures. Many lenders don't like to force borrowers out during the holidays and cold of winter.
John Titler, a Cedar Rapids attorney specializing in debt and bankruptcy law, said homeowners in the worst shape are those with both a fixed-rate first mortgage and a variable-rate second mortgage.
Often, Titler said, the second mortgage was used to consolidate debts at a lower rate. The interest rate on the second mortgage is tied to short-term interest rates, and it rises more quickly than a simple adjustable-rate mortgage.
If the loans total more than the value of the property, as is often the case, the mortgage company is typically faced with losing money if the house is sold. The company may refuse to allow the house to be sold, or hold the debtor liable for any deficiency, plus court costs, attorney fees and other expenses. Such situations also limit the debtors options for refinancing the debt at a lower fixed interest rate.
"These situations, more often than the others, will lead to a bankruptcy filing," Titler said. Rising interest rates are just one factor driving the foreclosure trend. For Todd Griep, 32, of Cedar Rapids, the main factor was a legal problem, combined with no health insurance or financial cushion. Griep, who now works as a tire technician, has never borrowed much, but has at times lived paycheck to paycheck.
On Feb. 25, 2004, Griep was arrested for drunken driving, his third such violation. Griep began serving his sentence part time at the Oakdale Classification Center after the birth of his youngest child. He had to trade his full-time job for a part-time job, leaving almost no income after paying child support, utilities and legal expenses.
Off alcohol for two years, Griep is now seven to eight months behind on mortgage payments. A sheriff's sale, originally scheduled for this month, was recently moved back to September.
Realtor Rick Kullander of Re/Max Associates met Griep and his wife, Dawn, last fall when their finances were unraveling. Kullander wrote a letter to Griep's mortgage lender, asking it to waive interest because of the unusual circumstances. Todd Griep has also written to his lender and other parties.
Dawn Griep is trying to start her own business collecting small-claims judgments if she can raise the startup capital.
"You have a situation where, even though Todd originally owed about $93,000, because of the interest, fees, and penalties he owes about $100,000," Kullander said. If the house is sold for less than that amount, the bank -- or Griep -- can object.
Griep's lack of legal knowledge has left him feeling helpless, a situation Titler said is common among homeowners.
A frequent mistake homeowners make is failing to understand and exercise their limited legal rights in foreclosures, Titler said. For many, the most important may be the right to occupy their homes past the date of foreclosure.
Exercising that right can buy the homeowners six months in their houses even if they can't afford to make any payments. Smart debtors can use that time to save money for rental deposits or other housing arrangements.
AP-CS-04-03-06 0901EDT
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