The business of foreclosures: Realtors adjust marketing efforts; banks stand ready to lend to qualified buyers
REGION – It's next to impossible to read a story about the current housing market that doesn't mention foreclosures. The number of homes in foreclosure nationally – and locally – is up over last year. It's impact on the real estate market overall is very real.
A quick national snapshot shows foreclosure filings, including default notices, auction sale notices and bank repossessions, were reported on 223,651 properties during February, according to RealtyTrac, an online real estate site and marketplace for foreclosure properties. That figure is up 57 percent compared to February 2007.
RealtyTrac's February 2008 U.S. Foreclosure Market Report notes that one in every 409 Michigan households received a foreclosure filing during February for a total of 10,957, a 17.84 percent increase over February 2007. Detroit had the highest foreclosure rate in the nation last year.
But what's happening in our corner of the state? Talk to virtually anyone in the real estate industry and they will say this is still a very desirable place to live and, according to most, the best place to own real estate in Michigan.
Nonetheless, local realtor Sherry White recently arranged a Repo Buyers Bus Tour that shuttled people around to look at bank-owned properties in the Traverse City area. Another realtor was going to do the same in Benzie County. The local realtors association has started tracking foreclosures through its Multiple Listing Service. Foreclosure notices recorded at the Register of Deeds offices in Benzie, Grand Traverse, Kalkaska and Leelanau are, for the most part, up significantly (See graph next page.)
The Business News talked to several folks in the real estate and banking industries to see what impact foreclosures have had, how professionals are reacting to the state of the regional housing market and where they see things headed.
Tim Reid of RE/MAX Bayshore Properties in Traverse City works almost exclusively listing and selling foreclosed properties.
"I'm incredibly busy with foreclosures," Reid said, adding that he does 35 percent of the foreclosure brokerage business in this market. Comparing 2006 to 2007, Reid said his foreclosure business doubled.
"I don't see things changing soon, but I have seen mortgages more carefully allocated more recently," he said. "The thing that has struck me very hard is the heavy impact foreclosed properties have on the real estate market."
But, he said, that impact isn't necessarily all bad. For instance, a home that was valued at $270,000 three years ago, Reid said, today may be valued at $220,000.
"Is that terrible?" he asked. "Not if $220,000 buys something else. People are buying now, this region will continue to grow, and a great buy now is all that much greater later."
For realtor Connie Rountree, listing and selling foreclosed properties accounted for 40 percent of her business in the last year, she said during an interview in late February. She said most of her listings and sales of foreclosed properties come from a "connection" she has with one local bank. She's sold foreclosed homes to first-time home buyers, investors and people looking for rental properties.
Rountree, sales manager and managing broker for the Coldwell Banker Schmidt Realtors office in Acme, said up until last year she had sold perhaps two foreclosed homes in her career. She is now in her 16th year in the industry in northern Michigan.
Rountree said she is hearing about more and more people "just walking away" from their homes. "Either they borrowed way too much, their lives changed, or they can't sell the homes for what they owe, and they need to get on with their lives," she said.
For realtor Matt Case, early 2008 has been marked by deals.
"For me, it's been a great year so far," said Case, associate broker with Coldwell Banker who manages its Benzie office and serves as president of the Traverse Area Association of Realtors (TAAR) "There are some great deals out there, and not necessarily foreclosures," said Case, adding that first-time home buyers have been the greatest beneficiaries of the market.
Case said TAAR statistics show that 39 percent of homes sold in February were bank-owned properties, the majority in foreclosure.
"They aren't the prettiest and aren't staged for selling, but they are competing on price," Case said.
BANKING ON IT
While banks and other lenders are dealing with a higher percentage of mortgage delinquencies and defaults than normal and are taking considerable hits on the sale of foreclosed properties, they stand ready to loan money to qualified buyers.
"We have lots of money to lend," said Richard Jackson, executive vice president for Northwestern Bank. "Our approach to pricing and underwriting hasn't changed at all."
Jackson said the bank never got involved in subprime lending and has fielded questions from concerned customers who thought "all banks got involved in the folly." Subprime lending refers to loans made to home buyers who don't qualify for the best interest rates. That, and predatory lending practices have been blamed for much of the increase in mortgage defaults and homes in foreclosure.
"Borrowers shouldn't be afraid to borrow," said Jackson.
Kim Pontius, executive vice president of TAAR, said the foreclosure market has affected "consumer confidence and public perception," and national reports have created an inaccurate picture of what's going on in this region.
"We've weathered the storm pretty well up here," he said. Where he has seen the foreclosure market having an impact is on vacation and second homes as well as high-end homes. "But that's largely due to consumer confidence and people worrying about the economy in general, not our real estate market."
In a normal market, banks want their delinquency ratio below two percent, said John Klingelsmith, assistant vice president and mortgage loan officer for Huntington in Traverse City.
Right now, it's between four and five percent. Delinquencies are defined as loans that are behind in payments, but less than 90 days late. After 90 days, the foreclosure process begins. He added that delinquency ratios for subprime, option adjustable rate mortgages and rural housing loans are much higher, averaging 15 percent.
"Our delinquency ratio is up compared to last year, but well within our peers," he said.
Klingelsmith said he's called customers whose mortgages have entered delinquency and encourages other customers to call their lenders if they find themselves starting to have trouble. The number one reason he's seeing for delinquencies or foreclosures is job loss, followed by a decline in income and then a death or medical situation.
Jackson said the bank's delinquency rates are lower than other area banks and its forfeitures are up 25 percent over 2007, a factor of the economy rather than "careless lending." As for early 2008 activity, Jackson said January was the bank's best month for new mortgage origination, citing favorable interest rates and a buyers' market.
TAAR's Pontius echoes the buyers' market sentiment and predicts a market that will hit bottom this summer, adding that now is the time to "get in and get a good buy."
For Klingelsmith, he expects to hear more and more positive stories coming out of the regional market, such as this one he heard recently: a foreclosed home in town that was listed for $85,000 and recently sold for $100,000. BN