Last year, more N.C. families were threatened with losing their homes through foreclosure than ever before, a new state report shows.
Hardest hit were homeowners in Mecklenburg and surrounding counties, where foreclosure filings are among the state's highest and rising fast.
"It's terrorizing, the idea that you're going to lose your home," says Margarita Lizarra of Charlotte, who was threatened with foreclosure last year and now counsels others. "You wonder, what are you going to do?"
North Carolina recorded more than 45,500 foreclosure filings in 2006, according to the Administrative Office of the Courts in Raleigh.
Mecklenburg County had the highest concentration -- 35 per 1,000 homeowners, according to the Observer's analysis. Gaston County was fifth with 27. The N.C. average was 19.
Foreclosure filings are growing faster in most Charlotte-area counties. They're up 13 percent in Mecklenburg, compared with 6 percent statewide.
Foreclosures also are up in South Carolina and across the nation, according to mortgage loan experts.
A foreclosure filing is when the lender goes to court claiming that a borrower is behind in payments and asks that the house be sold to pay the debt. The filing is one of the first steps in the foreclosure process. Owners can stop foreclosures in several ways, including selling their houses to pay off the mortgage, refinancing, filing for bankruptcy or trying to make back payments.
Experts estimate that about half of foreclosure filings result in owners losing their homes. In Mecklenburg since 2003, it has been at least 40 percent annually.
Lizarra managed to hold on to her home. She and her counselor at United Family Services persuaded the bank to make adjustments to her loan. And she got a better job when the agency hired her to help others.
"I was lucky," Lizarra says. "But I deal with families and women with children who are so afraid. Their house payments are going up. They can't pay them. They're wondering where they're going to go. To a shelter? Out on the streets? Sleeping in their car?"
New mortgage loans a factor
Why are foreclosures rising across the state, and especially in the Charlotte area?Certainly, more homeowners are straining their budgets tighter than ever to purchase homes. But growing numbers of new mortgage loans help them do it, experts say, especially high-interest and adjustable-rate subprime mortgages.
The subprime industry was designed for borrowers with credit problems, and it offers mortgage loans to consumers who couldn't qualify for them in the past. But subprime loans carry high interest rates and are more likely to foreclose.
Consumer protection groups say they're worried, too, about new types of adjustable loans offered through subprime lenders and some traditional lenders. These start with low "teaser" payments that rise dramatically after a few months or years.
"These are one-way, exploding mortgages," says Mal Maynard, director of the Financial Protection Law Center in Wilmington. "They never drop below the original rate; they can only go up."
Al Ripley, of the nonprofit N.C. Justice Center in Raleigh, says his group typically sees lower-income home buyers whose payments rise suddenly from about $900 a month to about $1,250.
"That's a big jump for most people -- especially when they were barely able to afford the $900-a-month payment to begin with," Ripley says.
Mecklenburg County has been No. 1 in North Carolina in foreclosure filings per household for at least the past two years, the Observer's analysis found.
Subprime loans don't entirely explain why, but they're a factor, says Ellen Schloemer of the Center for Responsible Lending in Durham, principal author of a new national study on the issue.
Subprime loans make up 14 percent of all mortgage loans in Mecklenburg, according to the most recent data. In Wake, the state's second-largest county, it's about 10 percent. Wake, where Raleigh is located, also has far fewer foreclosure filings, 19 per 1,000 homeowners compared with Mecklenburg's 35.
Another factor may be Mecklenburg's higher concentration of lower-priced homes, which make up a majority of foreclosures. Forty-one percent of Mecklenburg's housing is valued under $150,000, compared with 33 percent of Wake County's, according to the U.S. Census.
Latest foreclosure trends
The Observer recently examined Mecklenburg foreclosures from 2003 through early 2006. The findings include:
• More than 80 percent of foreclosures involve homes valued at $150,000 or less.
• Most foreclosures cluster on the county's west, north and east sides, where houses and land often carry lower price tags.
The newspaper also investigated the problem in a series of stories last year that found dozens of relatively new, starter-home neighborhoods with high concentrations of failed mortgage loans. Those foreclosure clusters drove down home values in whole neighborhoods, even hurting owners who made their payments on time.
After the Observer's series last January, N.C. House leaders named a special committee to look into remedies.
The committee met several times last year but postponed pushing for new laws until this year's session, which convenes Jan. 24.
"We need to get some legislation onto the floor," says Becky Carney, a Mecklenburg Democrat and a co-chair on the study committee. "I'm committing to making that happen."
N.C. Commissioner of Banks Joe Smith agrees the state has to take steps: "It's a serious issue for the mortgage market."
Charlotte addresses issues
Charlotte officials vowed last year to look into providing more help for consumers trapped in foreclosure, including more foreclosure counselors for United Family Services. But City Council members did not include new positions in their budget."We're asking the city for another counselor this year," says the agency's Bruce Hamlett. "The demand is there."
Mayor Pro Tem Susan Burgess says the city is addressing the foreclosure problem in several ways, including consumer education and foreclosure counseling. Other efforts are in the works, Burgess says, but she doesn't know whether the city will find money for another foreclosure counselor.
While lawmakers try to deal with the problem, mortgage loan failures climb, owners are evicted and houses auctioned.
Foreclosures have more than quadrupled in Mecklenburg since 1999, from 595 to 2,841 last year. The Center for Responsible Lending's study last month predicted that one in five subprime mortgages originated in the past two years will end in foreclosure.
"That 1 in 5 rate has not been seen on a wide scale in more than 60 years," says the center's Schloemer. "Fifteen percent foreclosures was always the disaster scenario. But we know it's going to be worse than that."
The Mortgage Bankers Association, which tracks outstanding loans nationally, says the Center for Responsible Lending's report is overly pessimistic. But the MBA does expect foreclosures to rise, though more slowly.
"My business just keeps coming," says Tony Smith, a Charlotte real estate broker who specializes in foreclosures. "My best clients are still sending me new assignments every week."
If You Fall Behind on Mortgage Payments
Contact the company that services your loan; it may be willing to adjust payment schedules to help.
You also can contact a third-party counseling agency, which may be able to work with the company on your behalf.
In Charlotte, United Family Services offers counseling at 704-332-9034.
Outside Charlotte, find a local counseling agency by calling the Department of Housing and Urban Development at 800-569-4287.
Possible Measures
Among the measures legislators and consumer protection experts are talking about to curtail foreclosures:
• Hiring more state investigators to look into consumer complaints and bad loans.
• Allowing homeowners in foreclosure hearings to show evidence of lender and loan servicers' wrongdoing. Now, the hearings are narrowly focused, primarily on whether owners are behind on their payments.
• Making public the names of appraisers, mortgage originators and other real estate professionals, to make it easier to detect patterns of failed loans.
• Requiring lenders to consider a borrower's ability to make all payments in an adjustable-rate mortgage -- including the highest ones.
• Requiring lenders and brokers to offer each borrower the most suitable loan available.
• Expanding the state's Home Protection Pilot Program, which offers no-interest loans to people who lose their jobs so they can make mortgage payments.
