Wisconsin Mortgage Holders Suffer from Subprime Market Fallout
Wisconsin mortgage holders have paid dearly for the wild success of the quick-but-costly subprime loan trade.
Homeowners across the state took on $1.6 billion in subprime loans in 2005 alone - the most recent year for which figures are available. Those loans accounted for nearly 21% of the state’s mortgage market and an incredible 34% of Milwaukee County’s, federal Home Mortgage Disclosure Act records show.
“High cost loans,” as they’re dubbed by the industry, carry mortgage interest rates at least 3 percentage points above market norm.
Typically issued to people with poor credit or tight finances, subprime loans also appeal to affluent borrowers who want to bypass the traditional underwriting review. As these loans ripened, Wisconsin housing market residents’ reputation for responsible bill-paying got scuffed.
The state is now 11th worst in the nation on loan defaults, based on its fourth-quarter 2006 foreclosure rate of 1.46%, the Mortgage Bankers Association reported March 13. Legal actions to seize property for unpaid debt surged 34% last year and are running 27% higher in this year’s first two months, according to industry tracker ForeclosuresWI.com.
“We’re seeing the fallout from the inappropriate loans of ‘05 and ‘06,” said Todd G. Clausen, data center coordinator for the Nonprofit Center of Milwaukee Inc., after mapping the numbers attached to all those broken dreams.
“It will take a few years to see this picture clearly, but I think that’s what the big increase in foreclosures is all about - adjustable-rate mortgages, high interest rates, high fees,” Clausen said. “I don’t think people realized just how high their payments would go.”
Hunted down
Hard-luck cases are pouring into Milwaukee County Circuit Court Clerk John Barrett’s office at such a heavy flow that he asked staffers to double-check the figures.
“I wondered, did we input something incorrectly, or is something happening out there?” Barrett said.
He spotted a new ingredient in the usual mix of life blows - divorce, death, illness, job loss - in foreclosure filings. It was bad credit mortgage loans.
“They’re mining us, calling us, doing all kinds of stuff to get us to take out a loan,” Barrett said. “And some of it is predatory. Big banks have the FDIC and other regulators looking over their shoulders. These subprimes don’t have anyone looking over their shoulder. They’re working to make sure the deal happens, with the same hunger that buyers feel about having a home of their own.”
Now it’s all coming apart.
At least two dozen subprime lenders nationwide have hit the skids in recent weeks, unable to meet their own financial obligations, as defaults soar on even their newest loans.
The Securities and Exchange Commission on Monday announced an industrywide investigation and the State of Massachusetts ordered a probe of whether Wall Street analysts with a vested interest might have downplayed subprime troubles.
Meanwhile, mortgage customer complaints to the Wisconsin Department of Financial Institutions are running significantly ahead of last year. Agency records show 112 consumer complaints as of mid-March, compared with 358 in all of 2006.
“Some people say, ‘They should have never made me this loan,’ ” said Michael J. Mach, the department’s banking division administrator. “Some say, ‘I didn’t understand what I was getting.’ ”
Mach wishes people would read loan paperwork, but many apparently don’t. Many complainants didn’t even realize they had adjustable-rate mortgages whose monthly payments would escalate, the regulator said.
Promises and papers
Milwaukee homeowner Scott A. Schlipp counts himself as one who escaped.
In seeking to consolidate the mortgage on his south side flat with some credit card debt, he turned to one of the nation’s top-volume subprime lenders.
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