Louisiana Mortgage Problems Growing in Numbers

When some mortgage lenders opened the door to everyone wanting to get a slice of the American dream - that home with a neatly manicured lawn of their own - people stepped through.

Got bad credit? No problem.

Not enough money for a down payment? No problem.

What about stated-income loans - where the buyer’s income isn’t verified? Mike Anderson, president of the Louisiana Mortgage Lenders Association, calls them “liar loans,” and says that was commonly practiced as well.

The buyer gets into the home and the mortgage lender makes money, but “it really doesn’t help anybody” when the buyer defaults on a loan and the lender forecloses, Anderson said.

That’s what hundreds of thousands of people, who opted for non-traditional mortgages such as subprime, are experiencing as payments grow with rising interest rates.

“There are a lot of people who closed on loans who shouldn’t have been approved,” Anderson said.

Nationally, foreclosures jumped to 149,150 in March, compared to 101,597 in March 2006 and 139,922 in February 2007, according to RealtyTrac, an online marketplace for real estate that includes foreclosure properties.

Though other areas in the nation are doing worse, Louisiana and, even more specifically, the Shreveport housing market, is no exception to the trend.

In Caddo Parish, the number of foreclosures jumped from six in March 2006 to 46 a year later, according to RealtyTrac. That latest figure was only one more than the 45 reported for February.

Louisiana mortgage foreclosures reported for Bossier Parish jumped from one in March 2006 to 17 for March 2007, up by two from February.

However, RealtyTrac showed reported Louisiana foreclosure activity went against the national trend for March by dropping 25 percent. In the U.S., one out of every 775 households are in some stage of foreclosure.

But figures also showed the latest numbers were about five times higher when compared to the 120 reported in March 2006.

The real estate site, however, warned the actual year-over-year increase might not be as high due to expanded data coverage in the state.

The substantial jump could be partly attributed to a moratorium on home loan foreclosures for hurricane-ravaged areas that expired in May 2006.

In April 2006, foreclosures were averaging about 1 in 23,249 houses, said Darin Domingue, deputy chief examiner for the state’s Office of Financial Institutions.

However, he couldn’t say what accounted for the jump in Louisiana mortgage foreclosures in the Shreveport-Bossier City area.

“It’s a little bit hard to see the impact Katrina would’ve had on these parishes,” said Daren Blomquist, a marketing communications manager for RealtyTrac.

Some home mortgage providers might have done blanket foreclosures for the state, Domingue said, but he didn’t know whether that was the case.

But Donna Johnson, branch manager for Allied Home Mortgage in Shreveport, believes the same thing that is hitting struggling homeowners nationwide is impacting Louisiana mortgage holders locally.

The branch is getting calls from customers who are in dire need of home mortgage refinancing because they have waited too long, she said.

“My recommendation is when people find they are not going to be able to make their first payment, they should be proactive in contacting that home mortgage company,” she said

“Don’t be afraid. … The lender really doesn’t want that home.”

Higher prices and rising property taxes also could be part of the problem. Even a slight hiccup in someone’s salary could put them into a position where they’re not able to pay bills.

But “the thing about Louisiana is we have not incurred the incredible price increase in housing that other states have,” Brennan said, adding $100,000 or $150,000 will get buyers a decent house in Louisiana.

“Then again, our income is not as high as other states.”

An foreclosure analysis by RealtyTrac showed 60 percent of the home loans were subprime, or bad credit mortgage loans. Such home loans are generally given to people who don’t have good credit, and the interest rate is at least two percentage points above the average interest rate.

Unlike traditional 30-year fixed mortgages, subprime loans are adjustable and payments grow as the mortgage rates rise. Rates are fixed, for two years, but increase for the remaining 28 years.

“If you go for an adjusted rate mortgage, you’re going to be a candidate for foreclosure,” he said.

“But Louisiana just doesn’t have that much of those type products,” he said of subprime loans. “Only 13.9 percent of the Louisiana home loan market was subprime.”

Of that 13.9 percent, only 7 percent was nontraditional mortgage products such as payment options. Prime and FHA loans insured or sponsored by a government entity make up the majority of the type of mortgages in the state, he said.

SOURCE: Shreveport Times