Saturday, March 12, 2005

Housing boom brings surge of foreclosures to Nashville area


At a time when historically low interest rates have put home ownership within closer reach than ever before, the American Dream has turned into a nightmare for a significantly higher number of people in Middle Tennessee.

The number of home foreclosures for Davidson and nine surrounding counties rose 52% to 3,004 last year, up from the 1,976 recorded in 2003. The figures were compiled by Foreclosure.com, an online service that keeps a nationwide database of foreclosure listings.

Credit counselors and others who work with people in financial distress said the surge in foreclosures adds a dark cloud to the otherwise sunny picture of a housing boom enjoyed locally and nationally since 2000.

They say the numbers also point to the dangerous game many middle- and lower-income Americans are playing: living paycheck to paycheck while saddled with debt.

What to do if you're facing foreclosure.

What is a foreclosure?

Clarksville No. 1 in foreclosures.

''We're in a hot housing market, and everybody is buying a house or refinancing a house, and because the interest rates are low, many people are stretching to buy more house than would be able to afford otherwise,'' said Maria Salas, a Nashville bankruptcy attorney. ''But they don't have a safety net, and when something happens to them, people wind up losing their houses.''

Another troubling thought: It could get worse. Many forecasters expect interest rates to rise this year, which would not only add to the housing costs of borrowers with adjustable-rate mortgages but also cool the overall housing market.

''With the extremely low interest rates we have, it's easier to avoid foreclosure,'' said Joe Prochaska, an attorney who represents lenders in foreclosure proceedings. ''It's easier to sell your home and pay off your lenders. If interest rates go up, what's going to happen to someone with an adjustable-rate mortgage who can barely make their payments with their interest rate at 4%?''

Symptom of growth?

Davidson and nine surrounding counties saw their number of foreclosures increase, led by Wilson County, which saw its total more than double last year. Davidson and Montgomery counties had the most foreclosures and saw their number of listings rise by 53% and 86%, respectively. Williamson County had the fewest foreclosures, 71, and saw the smallest increase at 9%.

Local real estate professionals and bankruptcy attorneys generally expressed surprise at the amount of foreclosures, which coincided with a national 42% increase.

Unclear is whether the sharp rise means that a higher percentage of people are having trouble paying their mortgages, or whether the numbers are another sign of the growth in the overall housing market, which posted records for both the number of homes built and sold last year.

For much of the past five years, falling interest rates have opened the door to home ownership to record numbers of people. According to U.S. Census Bureau, the national home ownership rate rose to an all-time high of 68.3% in 2003, the most recent year data are available. In the Nashville Metropolitan Statistical Area, the number of homes with a mortgage rose by more than 25,000 in three years, from 188,073 in 2000 to 213,294 in 2003.

In many cases, borrowers have been able to purchase a home with little if any down payment, often through the Federal Housing Administration and other government-backed loan programs. And millions of Americans have taken advantage of the low interest rates to refinance their mortgages, with some opting to increase their loan amounts to pay for everything from credit card debt to home improvements and vacations.

Some also have chosen to buy a more expensive house than they otherwise might — even though it means devoting more of their income to their mortgage. From 2000 to 2003, the share of homeowners in Nashville spending 30% or more of their income on housing costs rose from 24.2% to 29.4%.

Such activity helped prop up consumer spending when other sectors of the economy were languishing after the Sept. 11, 2001, terrorist attacks and directly lifted the housing market to new heights. Home sales in the Nashville area broke a record for the second consecutive year in 2004, while the number of housing starts in the Midstate rose 17% to eclipse 16,000 — the highest amount ever recorded.

The area's growth could explain why other measurements of how many people are having trouble paying their mortgages aren't seeing the same dramatic increases as the number of foreclosures.

According to the Mortgage Bankers Association of America, the share of mortgage loans more than 30 days past due in Tennessee has risen from 5.73% to as high as 6.71% since the beginning of 2003 but had fallen to 6.06% for the third quarter of 2004, the most recent period available.

The rise in foreclosures also contrasts with their share of the overall volume of mortgages issued in the state, which has actually fallen — from 1.85% at the start of 2003 to 1.47% last fall. The association doesn't track data for specific counties or metropolitan areas.

One more sign that growth might be an explanation for the rise in foreclosures: The areas where the most owners are losing their homes are also some of the fastest-growing.

La Vergne's 37086 ZIP code, for example, posted the third-highest number of foreclosures in 2004 with 148, up from 76 the year before.

The ZIP code is the home of the Lake Forest Estates development, whose 307 new homes last year earned it the distinction of being the Midstate's fastest-growing subdivision.

This past week, four properties in the subdivision were being marketed as foreclosure sales on the Foreclosure.com Web site.

Walking a tightrope

Many of the hot spots for foreclosures are also some of the region's less affluent, such as Antioch and parts of Clarksville near the Fort Campbell military post.

The new foreclosure data suggest that at least some of the new class of homeowners in these areas have bitten off more credit than they can reasonably chew, especially when they have little savings to cushion them in the event of a financial crisis.

''A lot of Americans are living paycheck to paycheck,'' observed Howard Dvorkin, founder of the nonprofit Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla. ''We're spending every dollar we have. And then something happens in their life to cause them to fall off that tightrope.''

Many observers said homeowners who signed mortgages worth 100% or more of their home are most in danger of foreclosure because they find it difficult to sell their home and pay for extra costs such as real estate agent commissions.

''People who have either purchased or refinanced at a very high loan compared to the value of the home and don't have much equity built up can find themselves in a bind,'' said Jane Moore of Union Planters Mortgage of Nashville and president-elect of the Tennessee Mortgage Bankers Association.

As for what sends a borrower toward a foreclosure, Prochaska, the lenders attorney, said it can be any one of a number of life-changing events, with medical debts, divorce and job loss heading the list. He also said he has seen many middle- and working-class workers who are now underemployed and have seen their incomes shrink as a result.

''It's like what Tolstoy said,'' said Prochaska, referring to the opening line of the Russian author's classic novel, Anna Karenina. ''Happy families are all alike; every unhappy family is happy in its own way.''

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