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Regional Spotlight: As Wisconsin Teaser Mortgage Rates Expire, Some Unable to Pay

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RISMEDIA, March 13, 2007-(MCT)-Hard times and bad choices have landed thousands of Wisconsinites in deep trouble on their home mortgages. Foreclosure filings, which rocketed 34% in the state last year, jumped another 27% in this year's first two months, reported Robert A. Jansen, president of ForeclosuresWI.com in Milwaukee.
Foreclosure filings totaled 16,473 in 2006, with another 3,240 so far this year, his figures show.

Today's paths to financial ruin, here and nationwide, are well-worn ones: "job loss, health crisis, unexpected expenses, some mismanagement," said Dean Caldwell-Tautges, vice president of programs at the Homeownership Preservation Foundation, a Minneapolis non-profit group launched with a lending industry grant. "Or maybe it was several of these things that all ganged up on them."

Jansen sees a new ingredient in the mix, however.

"Much of the increase in foreclosures is the result of individuals stretching to buy more expensive houses than they could afford," Jansen said.

Adjustable-rate loans, which accounted for 51% of America's mortgage market in the second half of 2006, helped people buy beyond their means, in Jansen's view. When teaser-rate terms expired, he noted, borrowers' monthly mortgage payment spiked.
About $1 trillion in adjustable-rate mortgages is due to reset to higher rates this year, estimates Fannie Mae, the nation's largest mortgage buyer.

"It's going to take some people's monthly payments from the hundreds of dollars to the thousands of dollars," CEO Daniel Mudd predicted last fall.

Some borrowers hit the wall even before their adjustable-rate loans made that jump, said foreclosure specialist Marie M. Flannery, an attorney with Kohner Mann & Kailas in Glendale. She was shocked, she said, to get a wave of new foreclosure cases this year from borrowers whose loan payments had not gone up.

Over their heads

"What I'm seeing are people getting in over their heads," Flannery said. "People shouldn't go by these calculations that lenders do. You can't live paycheck to paycheck. If there's no pad there, and something happens-your spouse dies, your child gets sick-the whole house of cards comes tumbling down."

Alarmed at the growing financial turmoil in a state known for frugality, officials at Wisconsin Realtors Association and Wisconsin Mortgage Bankers Association said they will team up this spring on a consumer awareness campaign about the risks of some loan terms. Their targets: new and existing mortgage customers.

"We have credible lenders and good laws. What we need is much better education," said Bill Malkasian, president of Wisconsin Realtors Association.

One important lesson that needs reinforcing right now is delayed gratification, said Jim Kopp, legislative chairman and past president of Wisconsin Mortgage Bankers Association.

"Some people say, 'I want it now and I want it easy.' But they may not be getting the best deal they could," Kopp said. "Before they sign for a loan, before they even choose a lender, we want them to know what the smart options are."

By June, the two men say, their trade groups will have a consumer alert to distribute, "in time for the spring selling season," Malkasian said.

Meanwhile, debate rages across the nation about what role aggressive lending has played in the rising tide of mortgage defaults. Federal banking regulators have issued increasingly stern warnings to lenders about their duty to write loans suited to borrowers' means. Industry critics say lenders profited handsomely by downplaying risks.

Such criticisms are unwarranted, contends the Mortgage Bankers Association in Washington, D.C. In a Feb. 5 advisory called "The Facts about Mortgage Lending," the trade group asserted that there's no evidence tying the growth in distressed borrowers to non-traditional loans.

Officials there also pointed out that about 75% of defaulting borrowers ultimately arrange repayment or a quick sale and avoid seizure of their home for unpaid debt.

Caldwell-Tautges sides with this view, saying, "It's still life events that cause people to miss a payment and hardly ever because of the mortgage product."

It's also true that of the 300 to 350 calls a day fielded by his organization's consumer hotline-a 600% increase over 2006-about half involve non-prime loans, he said. Typically, non-prime loans are made to people with marred credit or tight finances and cost the borrower more.

"A lot of the people that are having trouble now are in loans that are not more than a year old," Caldwell-Tautges said. "Clearly, if their payment was a little more expensive, it put them closer to the edge."

There's no denying the rising tide of defaulting homeowners, said Brad Geisen, president and CEO of Foreclosure.com. His Boca Raton, Fla.-based tracking firm counted 1.44 million properties nationwide in some stage in foreclosure last week. "The numbers are higher, and I think we'll see them continue higher throughout this whole year," he said. "People overbought and now prices are actually declining and they can't get out from under."

Copyright © 2007, Milwaukee Journal Sentinel
Distributed by McClatchy-Tribune Information Services.

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