With all its prosperity, Waukesha County has not been immune to the foreclosure crisis

The number of foreclosures filed in Waukesha County Circuit Court through July 23 is on pace to exceed the number of foreclosures filed in 2006, which rose 38 percent over 2005.

The principal causes of the foreclosures are subprime loans and adjustable rate mortgages (ARMs).

The lure of the American dream of homeownership and low interest rates, coupled with some unscrupulous lenders, have led to a financial crisis for many.

Patricia Ramson, marketing director for Landmark Credit Union, blamed subprime loans, saying some mortgage lenders "hoodwinked people into it."

Subprime can submarine homeowner

Many people who receive subprime loans are credit risks, Ramson said.

"Some did not belong in subprime," she said.

Subprime loans and mortgages are offered to customers typically with bad credit history at higher interest rates than "A-paper" loans. The loans are risky for both the lender and the debtors, because of the debtors' history and the high interest rates. And interest rates continue on an upward path.

Landmark has seen people, though, with stellar credit and finances, but the time was not right for them to buy a house, Ramson said.

Ramson recalled a Hmong family that did not speak English well. An unscrupulous lending firm led them down a prickly financial path with a subprime loan.

"They got taken, royally taken," Ramson said.

That family was one of many who have had to go through the foreclosure process.

Foreclosures on the rise

By July 23, 440 foreclosures had been filed in Circuit Court this year, according to court records. In 2006, 612 cases were filed, up from 443 in 2005. That number was similar to the three previous years. In 2004, 419 foreclosures were filed; in 2003, 414 cases were filed; and in 2002, 434 cases were filed.

A random survey of foreclosures filed this year shows those finding financial difficulties come from a wide economic range, from properties assessed at $123,700 in the City of Oconomowoc to $705,300 for a house on Kopmeier Drive in the City of Pewaukee. Many assessments are in the $200,000 to $300,000 range, including a $357,600 property in the Town of Lisbon, a $268,300 house in the Village of Pewaukee, a $387,000 house in Dousman, and $239,900 in the Town of Oconomowoc.

The American Bankers Association, in a quarterly survey of consumer loans, has reported that late payments on home-equity loans rose to 2.15 percent in the first quarter of 2007. That was up sharply from 1.92 percent in the final quarter of last year and was the highest since the late summer of 2005.

Because of problems with subprimes, Landmark has instituted the Rescue Refi loan program, which targets homeowners who are victims of rapidly increasing interest rates on their subprime home loans.

Subprime lenders often set those loans up with very low payments, sometimes even below the monthly cost, so the total balance on the loan actually goes up each month. Subprime loans are given to people who might not qualify for a conventional loan for one of many reasons, according to a Landmark press release about its new program.

Interest rates on subprime loans might start low, but they readjust after an initial period, then reprice as often as weekly. Rates increase quickly, making the monthly payments also go up quickly, until the homeowner can no longer afford the home, the release said.

"Often subprime lenders charge a high prepayment penalty if they sell the home or refinance elsewhere," said Betty Feierstein, vice president of mortgage lending at Landmark.

Landmark is offering ARMs to help people get out of their fix.

Ramson said a variety of factors lead to foreclosure: divorce, loss of employment, medical bills.

For those on a tight budget, "if one little thing goes wrong and then the mortgage rate goes up," the homeowner could lose that home, Ramson said.

Ramson said Landmark often sends its customers to Credit Counseling Service of Milwaukee.

Kathryn Crumpton, manager of the nonprofit organization, said "quite a few people" have come to them in arrears with their mortgages and go into Chapter 13 bankruptcy to get back on track.

"If they're one or two months behind (on the mortgage payment), it's a lot easier to get back on track," Crumpton said.

Crumpton agreed that those seeking help come from varied backgrounds.

"It's not just lower income, it's high income, too," she said. "They're just into debt too much."

Crumpton said many of those in trouble have taken out an ARM and, in some cases, subprime loans.

Crumpton recalled the story of one woman who wanted a house very badly and did not want to wait any longer and went ahead with it. The woman would have been better off waiting.

"Some people want that home. It is the American dream," Crumpton said.

Look at the budget

People need to look at their budget, and if they fall behind, they need to "get the mortgage caught up," Crumpton said. And they need to look at what caused them to fall behind, she added.

"If they can't make the payments before, how do they do it now?" she asked.

If they can't, perhaps it's time to get into cheaper housing, Crumpton said.

What gets people into this unenviable position is typically other debt, medical bills, credit card bills and others, she said.

Crumpton said she is not a fan of ARMs.

"When ARMs come due, think about converting to a fixed rate," she said. The debtor will then not be surprised by the payments, she said.

Signs of trouble

When a person is late on a payment for the first time, that is the time to get help.

"Don't wait too long," she said.

The first signal of trouble, is when a person starts "living paycheck to paycheck," she said.

What Credit Counseling Service of Milwaukee does is work with people to review their budgets.

"Some people come in and it's the first time they looked at their budget," she said.

Crumpton said she is unsure whether the government will get involved in the crisis. But she said mortgage lenders should be more careful and helpful and help customers with making payments.

Otherwise, the lenders will be in the real estate business and she does not think the financial institutions "want to have all these houses."

"Otherwise, they'll be in the rental business," she said.

 

For more information on Wisconsin foreclosure rates, please see our Wisconsin Foreclosure home page for related articles.

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