West Virginia Housing Market Experts Fear Foreclosures are Near

The wave of mortgage foreclosures feared across the country hasn’t hit the West Virginia housing market yet, but it might not be far off.

Amid rising interest rates, falling house prices and a bulging portfolio of questionable home mortgage loans made to people with bad credit, lenders began sounding alarms earlier this year.

Foreclosures hit record highs in the last three months of the year, and a pall settled over “subprime” lenders, or those that lend to borrowers with poor credit and who consequently don’t qualify for prime mortgage interest rates.

At least two subprime lenders have been given cease-and-desist orders by state and federal regulators, and others are veering toward bankruptcy.

The threat of mass foreclosures appears to be the most serious in states with highly speculative real estate markets, such as California and New York and the District of Columbia, but it’s a nationwide problem.

The West Virginia mortgage delinquency rate rose more than any other state’s during last year’s fourth quarter, according to data compiled by the Mortgage Bankers Association trade group.

More than 7 percent of loans for one- to four-unit residences in the state were past due, up 1 percentage point from the July-August-September period. That gives West Virginia the sixth-highest delinquency rate in the country, the MBA survey shows. (Mississippi’s is the worst, at 10.64 percent.)

As with the rest of the country, much of the credit crisis in West Virginia is resulting from subprime loans. Just over 19 percent of such loans on West Virginia home mortgages were late, and nearly 4 percent were in foreclosure in the fourth quarter, the MBA says.

Too often, subprime borrowers sign loans to buy houses they have no business buying, and it’s happening more often, says Jeff Wise, president of Consumer Credit Counseling Service of Southern West Virginia, a nonprofit counseling agency based in Dunbar.

“We see it a whole lot more than we used to,” said Wise, who has been counseling debtors for 20 years. “Especially in areas where people are not as highly educated, and with senior citizens, lenders see them as easy targets.”

Consumer Credit’s client base has surged in the past few years, in large part due to changes in bankruptcy law requiring credit counseling for filers. However, predatory lenders are also contributing to the problem, Wise said.

Last year, the agency’s five offices conducted 3,060 counseling sessions, up nearly 95 percent from the previous year and more than double the total in 2004.

Typically, predatory lenders will lure borrowers with the promise that they can home mortgage loan refinance later and lower their rates, said Consumer Credit counselor Crystal Kudlak. Borrowers also overextend themselves in refinancing to cover unforeseen expenses, such as medical problems, she said.

Loan-to-value ratios are supposed to top out at 80 percent or so, Kudlak said, but some borrowers go in for 125 percent of their home’s worth.

While most banks make subprime loans, the dubious loans tend to be made by specialty mortgage finance firms, Wise said.

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