Foreclosures, Bankruptcies Increasing In Mountain Empire

The owners of about 200 Mountain Empire homes currently teeter at the precipice of losing their property to foreclosure.

Another 200 face the prospect of bankruptcy, while some 78 more are classified as distressed – meaning they are delinquent in making payments – and might eventually face foreclosure, according to Foreclosure.com, a nationally recognized listing service.

While the region isn’t suffering a catastrophic housing meltdown like many parts of the U.S., the home mortgage problem clearly has arrived.

In 10 counties and two cities of Southwest Virginia and three East Tennessee counties, nearly 500 homeowners are part of the growing number of foreclosures and bankruptcies.

“It is bad, but it’s not as bad as other places,” said Debbie Perry, home ownership program coordinator with the Eastern Eight Community Development Corp. in Johnson City, Tenn.

The nonprofit housing and human services agency, which provides foreclosure and financial counseling for low-income families in eight Northeast Tennessee counties, has fielded an increasing number of distress calls in recent months, Perry said.

While Eastern Eight has more clients facing foreclosure, the Southwest Virginia Legal Aid Society hasn’t seen much change, said Development Director Buckey Boone.

“There seems to be no increase in the number of cases we’ve handled regarding bankruptcies or other debt problems over the past couple of years,” Boone said. “About 17 percent of all our legal-aid cases are dealing with bankruptcy or debt problems.”

The society, which provides free legal services to low-income individuals in four area cities and 17 counties, also recently established counseling services specifically for those facing foreclosure.
How bad is it?

Foreclosure rates are significantly higher in some parts of Northeast Tennessee than in most of Southwest Virginia, according to Foreclosure.com. The Boca Raton, Fla.-based online listing service, an authority on foreclosures, is run by a group of real estate agents, mortgage lenders, managers and computer software designers.

A late-July check revealed 82 foreclosure filings in Sullivan County, along with 70 bankruptcies and 23 distressed properties. In Washington County, Tenn., the online service lists 39 foreclosures, 52 bankruptcies and 26 distressed properties. The totals don’t include homes for sale by owners who may or may not have financial issues.

And the pace isn’t slowing.

There were 101 new foreclosure filings in the greater Johnson City, Kingsport and Bristol, Tenn., region in June 2008, according to the Tennessee Housing Development Agency and RealtyTrac, an Irvine, Calif.-based, privately-owned online listing and foreclosure firm.

That total represents a 52 percent increase over May for the Kingsport-Bristol Metropolitan Statistical Area and a 39 percent increase over June 2007. In the Johnson City MSA, foreclosure filings are up by 6 percent, when compared to May, and 21 percent higher than June 2007.

The problem is far less acute in Southwest Virginia, where only Washington, Wise and Wythe counties registered double figures in foreclosure proceedings, according to Foreclosure.com.
Only Washington and Wise counties had more than 10 listed bankruptcies.

The Virginia portion – Washington and Scott counties and Bristol, Va. – of the Kingsport-Bristol MSA had an estimated foreclosure rate of 0.48 percent of all home loans for 2007, according to the Virginia Housing Development Authority.

That compares to 1.13 percent for Virginia and the U.S. average of 2.47 percent.

Nationally, the number of households facing foreclosure rose 121 percent during the second quarter of this year, according to RealtyTrac.

Numbers in context

Getting a handle on accurate foreclosure figures is akin to tackling Jello.

Complete statistics from state or local official sources is nearly impossible to compile because foreclosure proceedings aren’t recorded at a central location for each jurisdiction, said J.D. Bondurant, a research analyst with the VHDA.

The state authority has been attempting to compile such information from a variety of sources to aid the recently established Virginia Foreclosure Prevention Task Force, Bondurant said.

“Getting hard numbers has been difficult because Virginia is a non-judicial state, so you can’t just go pull up a record and get a total count of all filings,” he said. “RealtyTrac compiles information, but their coverage isn’t complete.”

For example, while Foreclosure.com lists seven foreclosures, three bankruptcies and three distressed properties in Bristol, Va., a check of RealtyTrac showed none of those listings.

Yet both states rely heavily on RealtyTrac for their estimates.

Tennessee also is a non-judicial state, meaning there isn’t a central storehouse of foreclosure filings.

Both Virginia and Tennessee currently rank among the top 15 states with active foreclosures, according to RealtyTrac, with the vast majority occurring in larger, metropolitan areas.

In May 2008 alone, Virginia had 4,827 foreclosure filings, while Tennessee registered 4,193. In June, Tennessee recorded 4,358, according to the THDA.

In 2007, Virginia ranked 24th nationally with more than 24,000 foreclosure filings, up from 16,000 in 2006, according to RealtyTrac.

Tennessee ranked 11th nationally last year, with nearly 46,000 foreclosure filings, up from about 26,000 in 2006.

Both, however, continue to lag well behind Nevada, California, Arizona, Florida and other crisis-riddled states.

Ticking time bomb

While the foreclosure rate in Southwest Virginia is comparatively low, it could change because of a preponderance of potentially volatile adjustable-rate loans, said VHDA analyst Bondurant.

Between 2004 and 2006, a fourth of all mortgage loans in 10 Southwest Virginia counties, Bristol, Va., and Norton were of the adjustable rate or “high-cost” variety.

While some Northern Virginia counties have been hard-hit by the mortgage crisis, the percentage of high-cost loans there typically is well below 10 percent, Bondurant said.

“Counties like Lee, Wise and Dickenson have a pretty high share of the high-cost loans,” he said. “Between 2004 and 2006, for example, Washington County had 867 high-cost loans for home purchase or refinance. That is 18 percent of all its loans. That’s significant.”

The region’s percentage of these types of loans ranges from 17.9 percent in Washington County to 42.9 percent in Lee County.

“We’ve got a lot of high-cost loans here when a lot of those people could have qualified for a conventional mortgage,” Bondurant said. “You really feel for folks who’ve been preyed upon.”

Predatory practices prevalent

Many going through the foreclosure process are victims of unscrupulous, predatory lenders who issue most of the adjustable rate loans, said Maria Timoney, an attorney with the Southwest Virginia Legal Aid Society.

“It’s nothing like a local bank. The character of the lenders is changing. Folks are approached by telephone to get these loans. It looks good – with no down payment and no interest payments – but when you look behind the curtain, it’s not,” Timoney said.

“In many cases they [lenders] come to the house for closing. Six months after refinancing, the lenders are nowhere to be seen, and people find they can’t make the payments,” she added.
The adjustable-rate mortgage loans remove many options from the table, the attorney said.

“It used to be, we had people with a traditional, fixed-rate mortgage who would get behind in their payments, and we would work with them,” Timoney said. “The problem now is a large percentage are variable-rate [loans]. The terms of the loan are not always disclosed or not disclosed in a way people can understand. And after the first six months, people find out they can’t make those payments.”
Perry, the Eastern Eight counselor, said it is also a key problem in Tennessee.

“We deal with a lot of loan companies and mortgage companies – the predatory lenders – who make these adjustable rate loans. And when people can’t pay the $1,000 [monthly] payment, they foreclose,” she said.

“People are getting horrible loans that adjust every six months. I worked with one woman whose double-wide [trailer] payment was $1,025 and has gone up every six months.”

Perry said she also assisted a couple who switched from a fixed-rate mortgage to an adjustable rate, believing it would make their payments more affordable.

“You want to ask them what were they thinking, but you can’t say that,” Perry said. “A lot of people are dealing with just trying to make ends meet.”

Many of the problematic loans also consolidate mortgages with credit card and other unsecured debts into a single, large payment, Timoney said.

“It used to be Chapter 13 bankruptcy was a perfect vehicle for people in trouble to keep their home,” Timoney said. “These [new] loans, we can’t solve. The variable rate means you can’t look into a plan to come out of the debt.”

Banks see less impact

On average, less than 4 percent of area home buyers were delinquent in making payments during the past year, according to Andy Whetsel, executive vice president of Citizen’s Bank.

“We have not had any significant changes in our delinquencies,” Whetsel said. “It always has its ups and downs, but it’s a small percentage. Our delinquencies ranged from 2-4 percent during the past year, but usually about half a percent to 1.5 percent truly go bad.”

Whetsel blamed predatory lending practices, relaxed loan standards and other factors as contributing to the nationwide problem.

Area banks have largely avoided trouble by sticking with traditional loans, according to Lynn Shipley, president and chief executive officer of TriSummit Bank.

“Part of the problem nationally is the underwriting standards were compromised,” Shipley said. “At TriSummit Bank, all our loans are done on a traditional basis. We verify employment, look at the equity in the house, we’re not doing 100 percent financing or refinancing and – most importantly – does this person have the capacity to repay the loan and have a history of good credit?”

Fewer options

The bankruptcy situation is complicated further by a 2005 federal law that makes filing bankruptcy more difficult, said Twin City attorney Bernard Via.

“Under the old law, people could file for bankruptcy but still keep their house if they could make the payments,” Via said. “Since 2005, it is much more expensive and much more complicated to file for bankruptcy. Now, if you file, more than likely they will foreclose on your home.”

People who often need foreclosure protection the most can no longer obtain it, he said.

Straight foreclosure proceedings, in which a homeowner is delinquent in making payments, are difficult to defend in court, Via said.

“Home buying is associated with a stable job and stable health,” Via said. “In the current economic climate, with the price of oil and everything else that’s going on, housing is not a good investment. Renting is better.”

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