(Published Sunday, August 26, 2007 11:49:02 PM CST)
A d v e r t i s e m e n t
By Chris Schultz/Gazette Staff
The wave of mortgage foreclosures washing across the country hasn't left Rock and Walworth counties unscathed.
But the effects here are not as serious as in other parts of the country, and the cause of the upturn in foreclosures may not be the same, either.
Russ Kashian, professor of economics at UW-Whitewater, said the nationwide spate of foreclosure filings and sales are the result of the housing market expanding into areas where customers did not have the credit or resources to keep up payments.
Kashian said that it appears that three years ago the mortgage brokers ran out of people who qualified for the standard mortgages.
Brokers categorize borrowers into three classes:
? Prime, who have good credit and good income.
? Alternative-A, who have either good credit or good income, but not both.
? Subprime, who have neither good credit nor good income, but whom a lender believes might nonetheless be able to afford a mortgage.
Kashian said that about three years ago lenders started reaching down to borrowers even below subprime.
"Five years ago, those people would not have qualified for subprime loans," Kashian said.
While most of the foreclosure pain in Wisconsin is being felt in the Milwaukee area, courts in Rock and Walworth counties also are seeing an increase in foreclosure filings.
Experts point to the adjustable rate mortgage, or ARM, as the main villain in the sudden upsurge in foreclosure actions.
That instrument, and others like it, was offered to those who didn't have the income or creditworthiness to be in the housing market in the first place, said Cheryl Paul, vice president and mortgage field manager for Johnson Bank in Janesville.
Those homebuyers were seduced by monthly payments that appeared affordable, until the adjustable rates adjusted up, ballooning payments and turning dream homes into unaffordable nightmares.
"The saddest part of this is people who shouldn't be in a home are now facing the loss of their home," Paul said.
Paul said Johnson Bank stayed away from those kinds of loans. The bank does business in Wisconsin and Arizona and has had just 14 foreclosures over 19,400 mortgages under service, said Larry Squire, president of operations for Johnson Bank in Janesville.
Others able to keep up with home payments fell victim to other financial disasters, such as divorce, medical bills or other debts.
Kashian said that nationally about 20 percent of those who took subprime loans will lose their homes. That means 80 percent will find ways to make the payments and keep their property.
Kashian said soft housing markets may be more to blame for foreclosures in Rock and Walworth counties than mortgages with ballooning monthly payments.
In wealthier areas, such as Walworth County, foreclosures are mostly on second homes and investment properties, Kashian said.
In Kashian's hometown of Muskego in Waukesha County, half the foreclosures are on empty lots.
"People are defending their primary homes, but they're letting their secondary properties go," Kashian said.
In the past, wealthy owners who might have sold when faced with financial problems, now find it's hard to sell a $450,000 property, Kashian said.
"If we had buyers, there would not be as many foreclosures, because then people would be able to sell," Kashian said.
