Michigan Mortgage Troubles Add Up for Bad Credit Borrowers

Eric Whitcomb stares at the Hillsdale house he lost to foreclosure and wonders: What could he have done differently?

“The big thing would be not to [mortgage refinance],” said Whitcomb. The 31—year—old now lives in a mobile home park where his monthly lot rent is almost as high as his first house payment.

“I was doing OK with the original loan with Southern Michigan Bank & Trust,” he said. “After I refinanced with an out—of—town lender, things got worse. My payment went from $300 a month to about $475.”

A job layoff figured into the scenario, as did confusion over the computer - based unemployment reporting system. Confusion reigned to some extent, said Whitcomb, as he scrambled to borrow from Peter to pay Paul. There were so many things happening, so much paperwork.

“I took out a personal loan to try to bring the house payments up, and then I couldn’t pay that,” Whitcomb said, shaking his head. “Then, I lost the house and the car. It just all happened so fast.”

Whitcomb’s story sounds all too familiar to a growing number of Hillsdale County residents. At last count, at least six homes a week go to the sheriff’s sale at the courthouse at 10 a.m. each Friday morning.

The Michigan housing market is being hit hard overall, but the foreclosure rate is rising fastest in five other states: California, Texas, Colorado, Florida and Nevada.

Reasons cited for the increased foreclosure rates are many and diverse.

- Poor economy in Michigan.

- Bust in the national housing speculation boom.

- Increased number of bad credit home loans to higher risk borrowers — known as the “sub prime market.”

- Predatory lending. Contracts carry high prepayment penalties, high fees and/or escalating payments if payments are missed.

- Loan competition leading to loans at more than 100 percent value.

- Adjustable rate mortgages (ARMs ) catch homeowners off-guard when their mortgage payments suddenly rise.

In general, lending professionals see the greater number of mortgage defaults in the third to fifth year and more can be expected, according to Doug Duncan, chief economist at the Mortgage Bankers Association.

“(And ) if there’s a weakening in employment (locally ), it will lead you to weakening house prices,” Duncan recently told a group of real estate writers meeting in Charlotte, N.C.. “That’s the market ‘normalizing’, but it’s not a price bubble, it’s an employment problem.”

For an individual homeowner, it’s a lot simpler than all that “economic analysis.” They are losing their house, usually after dealing with other hard-hitting personal issues, such as job loss, divorce or family illness.

Few Michigan mortgage holders realize they have rights in the system, which is designed to help them through difficult times but comes across more often as alien, unfamiliar and threatening. For suggestions on dealing with a foreclosure or cleaning up credit in the aftermath, see accompanying information box.

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