Richard Howe -The Valley Patriot - February '08

Congresswoman Tsongas to Deliver Federal Funds to
Merrimack Valley Regional Transit Authority
Will Announce $392,000 in Funds Secured in Federal Spending Bill

The incidence of home foreclosures in Lowell rose dramatically in 2007. In 2006, there were 93 foreclosures in Lowell; in 2007 there were 283. While that number seems disturbingly high, for a variety of reasons discussed below, it is likely that there will be even more foreclosures in 2008. To better understand the causes of all of these foreclosures, I researched a number of them - 247 in all – to learn what was going on.

Here’s what I found:

1) In almost every case, the buyer at the foreclosure auction was a national lender, usually the one that had made the loan that was being foreclosed.

Deutsche Bank, Wells Fargo, Bank of New York and other large, national entities appear again and again as both the foreclosing party and as the buyer at the foreclosure auction. In only twelve cases (less than 5%) was the buyer at auction a private individual. Local banks were the foreclosing lender in just two cases.

2) 57% of the foreclosures were of the mortgage used to purchase the property.

A clear distinction in the Lowell foreclosures was between the mortgage used to purchase the property or a subsequent mortgage that resulted from one or more “refinancings” of the property. Of the 247 cases studied, 57% involved the foreclosure of the “purchase mortgage” while the remaining 43% involved a refinanced mortgage.

3) In 66% percent of the purchase mortgage foreclosures, the property buyer borrowed the entire purchase price

Of the 141 foreclosed purchase mortgages, 66% put no money down but borrowed all of the purchase price. Only in 34% of the cases did the borrower put any of his own money towards the purchase of the property.

4) In 72% of the purchase mortgage foreclosures, the amount borrowed was split between a first and second mortgage from the same lender.

In 102 cases (72%), the amount borrowed was split between a first and a second mortgage. Unlike the 1990s when these “seconds” were often hidden, the 21st Century “seconds” were all recorded along with the first mortgage and were always from the same lender.

5) The average foreclosure auction took place within two years of the purchase of the property by the borrower.

The borrowers in these 141 foreclosures didn’t wait long to get into financial distress. The average foreclosure deed was recorded 28 months after the property was purchased.
6) The amount obtained at the foreclosure sale was $53,000 less than the amount the borrower owed the lender.

As for the price realized at the foreclosure sale, on average it was $52,832 less than the amount the borrower owed the lender.

In 127 cases, the amount the property was purchased for at auction was less than the amount of the mortgage being foreclosed. Of equal importance is the fact that the subsequent sale of the property by the foreclosing lender to a third party is usually for significantly less – often 25% less – than the amount realized at the foreclosure sale.

7) 43% of the Lowell foreclosures involved refinanced mortgages.

Of the 247 foreclosures studied, 106 (43%) involved refinanced mortgages. In these cases, borrowers already owned the property, usually with the help of a purchase mortgage, but would “refinance” after owning the property for some period of time. The average refinanced mortgage property owner was typically on his fourth mortgage at the time of foreclosure.

8) Refinanced mortgages were foreclosed almost seven years after the borrower purchased the property.

In the 106 foreclosures of refinanced mortgages, the average borrower had originally purchased the property 82 months (that’s almost seven years) before the foreclosure occurred.

The mortgage that was foreclosed was obtained nearly five years after the property was purchased and was the fourth mortgage that borrower had on the property. Surprisingly, the time from the mortgage that was ultimately foreclosed to the foreclosure deed was 29 months which is just one month more than the 28 months between mortgage and foreclosure deed for the “purchase mortgage” foreclosures.

9) In refinanced mortgage foreclosures, the borrower owed the lender $75,000 more than he had paid for the house when he purchased it.

As for the money involved in the refinanced mortgage foreclosure, the borrower had purchased the home for $75,000 less than the amount borrowed on the mortgage that was ultimately foreclosed. To illustrate this with a simple example, homeowner purchases a house in 2000 for $150,000 and fully finances that with a purchase mortgage of $150,000.

Five years later, homeowner refinances and obtains a mortgage for $225,000. Homeowner cannot make the payments on that mortgage and it’s foreclosed with the borrower owing $75,000 more than was paid for the property in the first place.

While the above statistics tell us what happened in 2007, the bigger question now is what is going to happen in 2008. My sense is that the slow down in the housing market that began in 2006 will help slow the incidence of purchase mortgage foreclosures in 2008.

The major threat comes from “serial refinancers” who sustained a standard of living by repeatedly pulling equity out of their homes.

These folks now have the money spigot shut off and are left with monthly payments that they cannot afford and houses they cannot sell because the amount owed on the mortgage exceeds the value of the property. I’m afraid this means that we have not seen the end of stories about rising foreclosure rates.

Richard P. Howe Jr. is the creator of www.richardhowe.com, a blog that provides commentary on politics in Lowell. He also serves as Register of Deeds of the Northern District of Middlesex County. You can email him at lowelldeeds@comcast.net
a