Ohio Mortgage Defaults Take Toll on Property Values

The impact of foreclosures seeps far beyond the homeowner; it is beginning to take its toll on local real estate and Ohio mortgage lending markets.

Foreclosures often sit vacant for an extended period, which can lower home prices in an entire neighborhood. Vacant homes can then attract undesirable activity, both human and animal, making the area less desirable and, subsequently harder to sell.

Sue Smedley, owner of Real Estate II, said one of the area’s biggest problems is the “upside-down” house, meaning owners owe more than the house is worth. She said this happens with almost one out of two homes her agents are called to list. These homeowners have borrowed, often multiple times, against their home equity and now cannot sell. The inability to sell may push an owner toward foreclosure.

Andy Irick, senior vice-president for retail banking at Security National Bank, said mortgage lenders, too, are seeing upside down properties, which cost them money. He has seen homes worth $60,000 with loans for as much as $110,000.

When a bank holds the loan on a home that goes into foreclosure, they have to work with the sheriff’s department to sell the property and recoup as much as they can.

Irick worries that many local borrowers are turning to Internet loan providers promising unbeatable mortgage rates instead of using local lenders who are familiar with local real estate markets and values.

“A few years ago,” he said, “there were over 300 companies with mortgage loans in Clark County.”

Appraisal associated with Internet loans can be inflated or based solely on adjacent home values. When a property is inaccurately appraised, it can lead to home equity loans given when equity doesn’t really exist, increasing the potential for an upside-down situation that could become a foreclosure.

He said borrowers also need to find out the true cost of a loan, including rates and terms up front. Be aware of introductory (or teaser) interest rates that may change or adjustable rate mortgages that can only be adjusted upward, he said.

Smedley and Irick are concerned that buyers from all economic backgrounds need more consumer education to ensure financing they can live with in the Ohio housing market.

“Foreclosures can be found in every neighborhood in this community,” Smedley said. “It’s my 39th year in the business and I’ve never seen anything like it.”

SOURCE: The Springfield News-Sun