Arizona Home Loan Delinquencies Rising

The number of Sun Valley residents who lost their homes to foreclosure has spiked more than tenfold in the past year as more and more homeowners fell behind on their Arizona mortgages.

The problem may soon get worse, however, experts caution. Why?

Arizona mortgage delinquencies hit a four-year high last month.

Slower homes sales, dips in housing appreciation and homeowners unable to keep up with rising subprime (bad credit mortgage) payments are all behind the jump in foreclosures.

The Phoenix home loan market could take a hit if more lenders try to resell foreclosed homes quickly by cutting prices. Too many foreclosures in one neighborhood can pull the area’s home values down.

Other parts of the country, like Atlanta, Chicago and much of Florida, are already experiencing bigger housing downturns because of foreclosures.

“Our economy isn’t bad, but foreclosures will continue to rise,” said Jay Butler, director of realty studies at Arizona State University’s Polytechnic. “The fallout from the subprime market is just beginning.”

Last month, 553 Valley families lost their homes, according to the Information Market, a property-record research firm.

At the same time, 1,705 homeowners received notices from Arizona mortgage lenders that they were at least three months behind on their mortgage.

In March 2006, 782 homeowners were delinquent, but only 40 houses were taken back by the lenders and sold at a foreclosure or trustee sale.

The reason: The then-hot Arizona housing market allowed homeowners in trouble to sell, refinance or find a way to make up what they owed.

Houses are now selling much more slowly, with a record 50,000 of them on the market in greater Phoenix. Housing appreciation has been flat or has even fallen in many parts of the Valley during the past year.

“Many homeowners who bought at the peak and are now struggling may just end up walking away from their houses,” said Margie O’Campo de Castillo of Arizona Dream Realty.

“People who bought new homes on the Valley’s fringes a few years ago are particularly having trouble selling for what they owe now.”

Homeowners with bad credit home loans are struggling the most. And most don’t have the best credit, which is why they had to go with the higher-rate loans.

Economists are concerned that many people stretched their incomes to get into those Arizona home loans and lenders looked the other way to make the deal.

As people began to default on these more-risky home loans last year, subprime lenders started to fold. Now, all home loan lenders are tightening their standards, and more people trying to buy homes are being turned down.

• Arizona’s subprime delinquency rate climbed to 9.26 percent at the end of 2006. That’s lower than the national rate of 13.3 percent.
• But housing analysts are concerned because Arizona ranks behind only Nevada mortgage activity for the percentage of people with these loans.

Heather Ferguson thought she was getting a low-rate mortgage when she bought her Fountain Hills home in 2005. But her Arizona mortgage payments shot up.

“I wasn’t a real estate expert, but I had decent credit and could afford the payments on a 6.5 percent home loan,” she said.

After waiting around for her mortgage broker for four hours at the title agency, she ended up signing for a subprime loan that started with an 8.5 percent interest rate that has now climbed to almost 12 percent.

Her payment went from $980 to $1,680.

She fell behind last year, and her mortgage lender sent her a notice that it was going to foreclose. But instead of letting that happen, she called her lender, federal and state housing agencies and attorneys about the problems with her loan.

Continue reading in the Arizona Republic …