The Wisconsin Mortgage Foreclosure Crisis: What Went Wrong?
Amid the deepening Wisconsin mortgage foreclosure crisis, Legal Aid Society of Milwaukee last week announced an inquiry into what went wrong.
“We need to find out who are the people being foreclosed, who are their servicers and original lenders, and what kinds of loans did they get,” said Catey Doyle, the organization’s chief staff attorney. “There are a lot of questions about who bears responsibility for this situation, (and) the only way to find out who the players are is to manually go through court files.”
Doyle’s comments followed the latest bad news on the Badger State housing front: 1,532 new property foreclosure court filings in June, according to a ForeclosuresWI.com news release.
That brings to 9,229 the number of Wisconsin households facing foreclosure this year - about 73 more homes each business day, said Robert Jansen, president of the Milwaukee-based foreclosure listing service. The hardest hit area is Milwaukee County, with 2,327 foreclosure filings this year.
Legal Aid’s probe targets that County. Volunteers working under the group’s supervision recently launched a review of all Milwaukee County Circuit Court cases filed since June 2006, Doyle said. She said the group will report its findings this fall by lender, zip code, loan type and other factors.
Early indications are disquieting. As the housing sector here slid from boom times to bad times, and as regulators urged caution, risky mortgage lending escalated.
“Loans made in the last year got progressively more and more outrageous,” Doyle said. “It was like a feeding frenzy. Now we’re seeing 20 foreclosures a day on average in Milwaukee County, and sometimes 30. It’s really depressing.”
All year, her office has been awash in complaints of deceptive lending practices - “dozens of them,” Doyle said.
Jansen attributes Wisconsin’s 23% surge in first-half foreclosures this year, on top of the 34% rise in 2006, to mortgage defaults tied to recent adjustable-rate and exotic loans, plus soft housing conditions that prevent homeowners from refinancing or arranging a quick house sale.
Almost everyone will pay the mounting toll of ill-fated mortgages, said economist Russ Kashian, an associate professor at the University of Wisconsin-Whitewater. Foreclosed properties are returning to a market already clogged with too many “for sale” signs and skittish shoppers, he said.
“If you’re building new in Germantown, which has no real problem, but trying to sell in (a place hard-hit by foreclosures) you’re going to say, ‘I can’t build until I sell,’ ” Kashian said. “That will slow down new construction, and eventually bring back some sense of equilibrium.”
“All foreclosures do is push down prices,” Kashian said. “Talk to banks. They’ll tell you that holding these non-performing assets on their balance sheets is not popular with bank auditors. They don’t want these houses, so they dump them.”
The influx of foreclosed homes to a soft housing market “has already caused certain housing markets to flatline - parts of Milwaukee and Elkhorn, for instance,” Kashian said.
This raises another danger - that whole neighborhoods might destabilize in a shift from homeowner-dominated to investor-dominated, he said. Much of Wisconsin has only small-scale, isolated troubles, he said. But damage is spreading.
His forecast: “We’ll be in a slow market through 2009. After that, well, we have a growing population, and they have to have somewhere to live.”
SOURCE: The Milwaukee Journal-Sentinel