Bad Credit Home Loans Rankle Michigan Housing Market
The State of Michigan’s above-average reliance on risky bad credit home loan products is inflaming the state’s real estate downturn and pushing Michigan near the top of the list of states suffering mortgage delinquencies, the Battle Creek Enquirer reports today.
Wayne County saw the fourth-highest mortgage foreclosure rate in the nation in February, RealtyTrac reports. A recent Consumer Federation of America study showed that Battle Creek ranked in the top 10 metro areas in the United States for subprime mortgage refinancing of homes in 2005.
More than half of the mortgage refinance activity came in the form of subprime home loans, the study revealed.
The problems weigh heavily on the Michigan housing market - specifically moderate-income homeowners who have subprime mortgages, given to people with shaky credit histories.
Subprime loans allow such buyers to own a home, but only at mortgage rates that can run several percentage points higher than a standard (prime) rate. Michigan’s bad economy makes matters worse for residents.
Angela Gavelis inherited her grandmother’s house in southwest Detroit and in 2005 took out a $60,000 subprime mortgage at 8.5 percent to fix it up. But she wasn’t able to find a job, fell behind in her payments, and her mortgage lender foreclosed last year.
She filed for bankruptcy and is fighting the foreclosure.
“It needed a whole lot of work, a new boiler and everything, but they would not work with me when the payments started falling behind,” she said Friday. “I just didn’t count on the no-job situation.”
In the past few years, subprime lending has soared as a percentage of all U.S. mortgages as lenders — eager for income from mortgage-writing fees — began to loosen credit standards.
On the upside, this enabled many buyers to own a home for the first time. But in recent weeks, the rising volume of bad loans in the subprime market has shaken national credit markets and led to the failure of several lending organizations.
About 44,000 of the subprime Michigan mortgage loans — or 21 percent of the total of 210,000 — were delinquent at the end of last year. That was almost three times the state’s overall mortgage delinquency rate, which itself ranked among the highest in the nation.
It also was well above the national delinquency rate for subprime loans of 13.3 percent, according to a survey released this month by the Mortgage Bankers Association, a national trade group.
“There’s no question that Michigan is among the worst performing areas in the country, and it’s not a surprise,” Bob Walters, chief economist for Rock Financial, one of Michigan’s biggest mortgage lenders, said. “It’s completely related to our economic picture.”
The human cost can be considerable.
“Unfortunately, the people that get taken advantage of by the subprime lenders are the most vulnerable. That’s what’s sad,” said bankruptcy attorney Walter Metzen.
“Most of the clients who have those subprime home loans, they don’t know what their home loan rate is. They just don’t understand it.”
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