Saturday, January 15, 2005

Foreclosures up: economy down

Joy Scott
Star Staff Writer

SHELBY — It’s not necessarily the unemployment rate that tells the best story of the economy, says Shelby Bankruptcy Attorney O. Max Gardner III. The key indicator is the number of home foreclosures.

“When you see the foreclosure rates escalating for such a long period of time with such dramatic increases, I think that tells the state of the economy more than any other factor,” he said.

For 30 years, Gardner has helped people who have filed for Chapter 13 bankruptcy, which prevents creditors from trying to get money from a person in debt while they create a plan to pay their debt in three to five years, in general.

All it takes, says Gardner, is “one bump in the road” to throw a family’s finances off track. That can be: credit card payments, losing a job, finding a job that doesn’t pay as much or have health benefits; increases in the cost of gas for heating.

But no matter what, most people try to make their mortgage payment, he said. The foreclosure statistics are indicative of the hardships many are facing, he said.

“They tell me that the economy is really not improving. It’s getting worse. It’s pretty frightening,” Gardner said.

Cleveland County’s current unemployment rate is 8.3 percent, according to the Employment Security Commission of North Carolina. When the rate dropped to 8.1 percent in May 2004, it dropped the lowest it had been since April 2001, when the rate was 7.9 percent.

The median monthly homeownership cost in Cleveland County was $863 in 2003, according to the North Carolina Housing Financial Agency. The average hourly wage was $13.11 — $2.42 more than the hourly wage needed for someone to afford a two- bedroom rental unit at fair market rent. Forty-three percent of renter households don’t earn enough money to afford a two-bedroom house at the fair market rent, according to the agency.

To help North Carolina workers who lost their jobs because of the economic conditions and who are in need of temporary assistance so they don’t lose their homes to foreclosure, the North Carolina General Assembly passed a bill in the summer of 2004. That measure allowed the North Carolina Housing Financial Agency to create the North Carolina Home Protection Pilot Program.

Cleveland County is one of the pilot counties for the program, said Gardner.

Assistance includes a loan or stay of foreclosure. Proceeds from the loan can be used to make mortgages current, pay mortgage interest, property taxes, insurance or dues for homeowner associations, said Gardner. To qualify, a homeowner can’t have more than two mortgage loans, he said.

After participants receive assistance, they can receive zero percent interest on mortgage loans to be repaid in 15 years, said Gardner.

Homeownership is one aspect of Cleveland County’s tax base. But foreclosures don’t have as direct of an impact, said Tax Assessor Chris Green.

“That’s usually a foreclosure by the lender for that property,” said Green. “A sale out of foreclosure is not typically looked at as an arm’s-length transaction.

“A lot of times those types of sales aren’t used in the appraisal process because they may not really reflect the property’s true value.”

Local foreclosures may be up, but homeownership is still good business, says Bill Ingle, branch manager of CFIC Home Mortgage in Shelby.

CFIC opened seven months ago and has seen a lot of success in helping people find financing for mortgage, he said.

There are four elements that can cause foreclosure, he said. They are unemployment, lenders taking larger risks to make more profits, people overextending themselves in deciding how many years they need to make mortgage payments and mortgage fraud, he said.

CFIC has more than 300 lenders its clients can choose from, said Ingle. Some lenders want to make sure customers can make their payments but can pay their other expenses as well, he said. In some cases, the lender may require the applicant to submit a list of their expenses to help them calculate their payments, said Ingle.

Ideally, people want to keep their debt-to-income ratio at 40 percent, he said. For example, if a person makes $4,000 a month, their monthly mortgage payment shouldn’t exceed $600, said Ingle.


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