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Prime rate foreclosures surge in NC

Rich Fowler
Staff Writer

Warmer weather may be on the horizon, but don’t expect that to translate into a hot housing market. Uncertainty about the economy is one reason the market is tepid. Another is that the number of foreclosures continues to be high and new data on the types of filings points to a rise among traditionally safer borrowers.

Total mortgage foreclosure filings were up more than 17 percent statewide from 2008 to 2009, according to data from the N.C. Administrative Office of the Courts. The office tracks both commercial and residential filings in North Carolina, which, combined, rose from 53,960 in 2008 to 63,341 in 2009.

To make matters worse, two-thirds of current foreclosure filings are on prime loans, which are supposed to be much less risky for lenders than the subprime loans that started the foreclosure crisis, according to Chief Deputy Commissioner of Banks Mark Pearce.

Prime borrowers with fixed-rate mortgages are the highest-growth segment of foreclosures, according to, Roberto Quercia, director of the UNC Center for Community Capital.

“They have nothing to do with subprime [loans],” Quercia said. “They have nothing to do with people in unstable employment or with poor credit.

They’re just main-street, middle-class families that are … suffering from unemployment or other issues and are having trouble meeting mortgage payments.”

Pearce’s agency administers the State Home Foreclosure Prevention Project, an effort to get borrowers in contact with more than 200 loan servicers and 26 counseling agencies statewide.

When the project started 18 months ago, the agency was more concerned about the number of homeowners who were threatened by subprime loans that were engineered to automatically increase payments, making the loans unaffordable as soon as the ink was dry on the paperwork. Now the agency has expanded the program to borrowers who are struggling to make their mortgage payments by opening a telephone hotline that lets all North Carolina homeowners tap into the project’s network of counseling agencies.

Pearce is glad the program has saved more than 2,500 homeowners from foreclosure and gotten another 5,000 to meet with housing counselors about finances and look for ways to avoid foreclosure.

“We always would like to be able to do more,” Pearce said. “We would like to reach more people, and still too often we find that people aren’t calling us to take advantage of the resources we have.”

According to a recent study by the Conference of State Bank Supervisors, only 40 percent of borrowers who are seriously behind on their loans are involved in any kind of program to get help.

Bad practices

Al Ripley, a lawyer with the N.C. Justice Center, says that bad lending practices are still a large part of the problem.

“There’s still a lot of people out there that are in these awful loans who, however they’ve managed to do it, have scraped money together, lived on credit cards, but are basically trying to keep that payment floating and going, and then you run out of ways of paying that higher payment.”

Ripley says these people don’t have the income, can’t refinance because the value of the home has gone down and have used up other types of credit, such as credit cards.

“So in that kind of circumstance, they’re stuck,” Ripley said. “They’re upside-down on the loan, they can’t refinance, they’re in default, the HAMP [Home Affordable Modification Program] program isn’t working, the HARP [Home Affordable Refinance Program] program isn’t working, so they’re going to lose the house, and it’s just a very difficult situation for them to be in.”

The federal HAMP program has been sharply criticized for its lack of performance: By the end of 2009, out of over 3.3 million eligible loans, servicing companies had only been able to permanently modify a little more than 66,000 loans, with approximately 46,000 still waiting for the final paperwork.

Ripley has been frustrated by the inability of servicers to help his clients through the HAMP program. “What we’re literally seeing are servicing companies that on the one hand say to a homeowner, ‘Yeah, you can apply for the HAMP program to modify your loan, or the HARP program to try to refinance.’ And the homeowner does that, and then they get a foreclosure notice literally the next week, before they’ve even had their documents reviewed for the HAMP or the HARP program. And so you’ve literally got a servicer who’s foreclosing on the homeowner with the right hand while they say that they’re working with the homeowner to try save their home with the left hand.”

Mainstream issues

While the HAMP and HARP programs were originally designed to help subprime borrowers, as the number of people with prime-rate mortgages getting into trouble increases, Quercia is concerned that these kinds of programs will be less effective.

“The kinds of problems we have to deal with I think are somewhat different,” he said. “It’s not the kind of obvious predatory lending or unlicensed lending. It’s really more of the mainstream issues all related to the economy.”

One program available to help unemployed North Carolinians make their mortgage payments is the Home Protection Program being run by the N.C. Housing Finance Agency. The agency makes interest-free bridge loans of up to $24,000 for residents who have lost their jobs in the last two years so they can make their mortgage payments.

“I wish the program were 10 times bigger than it is,” Ripley said.

The State Home Foreclosure Prevention Project has a toll-free hotline you can call Monday through Saturday at (866) 234-4857.

To find out more about the Home Protection Program, visit their website at nchfa.com/Nonprofits/HPPPhomeprotectionpilot.aspx

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