Group Formed to Fight Surge in Foreclosures

By Anita Kumar

Friday, November 16, 2007

Gov. Timothy M. Kaine said Thursday that he is forming a task force to fight an unprecedented number of home foreclosures brought on by a boom of risky mortgage loans in Virginia.

Kaine (D) made his announcement on the same day that Congress began debating a bill to curb abusive lending practices across the nation.

“Many of Virginia’s working families are facing significant difficulty as mortgage rates adjust,” said Kaine, who made the announcement while speaking at a housing conference in Roanoke. “My goal is to have policies in place that will help Virginians before they are faced with foreclosure.”

The surge in foreclosures has created a national crisis that stems from an inflated real estate market and nontraditional loans made to people with weak credit.

Housing prices have skyrocketed in the past five years in the Washington area, even in suburbs generally unaccustomed to hard times.

According to the Dulles Area Association of Realtors, houses in Loudoun sold for a median price of $414,000 in October. That number is lower than at any point since the median price was $400,000 in November 2004.

In the past year, the median sales price of a home in Loudoun has fallen $81,400. The median price was $495,400 in October of last year.

In Virginia, the foreclosure rate has more than doubled in the past year. As of June 30, 5,800 homes in Virginia were in foreclosure, 4,000 of which involved subprime loans with interest rates at least three percentage points higher than rates charged to borrowers with good credit. Those numbers are expected to escalate in the coming months.

Loudoun had 1,132 homes in foreclosure in 2005 and 2006.

“The states are stepping up and playing stronger roles in meeting this challenge,’’ said Conrad Egan, president of the nonprofit National Housing Conference, a Washington-based group that advocates for affordable housing.

Egan, who also serves as chairman of the Fairfax County Redevelopment and Housing Authority, said some states are considering refinancing mortgages through state housing finance agencies, providing grants to borrowers and helping people buy homes through a shared-equity program that returns some of the home’s appreciation to the government.

The Virginia Foreclosure Task Force will be led by Secretary of Commerce and Trade Patrick O. Gottschalk and will include mortgage industry representatives, consumer advocates, policy experts and researchers. The group is charged with assessing foreclosure rates in the state, identifying resources available to homeowners, recommending education programs for homeowners and reviewing Virginia laws and regulations.

“Our concern is for the individuals and families who have struggled to find affordable housing and who are now facing foreclosure as rates adjust,” said Bill Shelton, director of the Virginia Department of Housing and Community Development.

Kaine did not name members of the task force or set a timetable for its recommendations.

Helen O’Beirne, director of the Center for Housing Leadership at the nonprofit Housing Opportunities Made Equal (HOME) in Richmond, said that she welcomed the governor’s involvement but worried that there would not be enough time for the General Assembly to consider proposals before it meets in January.

“HOME has seen clients facing foreclosure increase,” O’Beirne said. “It’s getting worse and worse.”

Consumer advocates say people generally learned about mortgages from their parents and grandparents, who typically put down 20 percent on a 30-year fixed loan and knew what their payments would be.

But in recent years, lenders loosened credit rules for those with bad credit who were unable to make down payments or did not make enough money to qualify for traditional loans.

Lenders charged higher interest rates, and often the rates were adjustable. Some borrowers understood the risks, but others did not realize payments could double or even triple in a month.

In the rising real estate market of recent years, borrowers could sell before going into default. Now, with home prices flat or falling, many of them are not able to sell their homes for enough to cover their mortgage balances.

Nationally, one in five homes with subprime loans is estimated to go through foreclosure. Two million homes in the United States are predicted to undergo foreclosure in the next 16 to 18 months.

“These are bigger numbers than we have seen in the mortgage market in the last 100 years,” said Michael Calhoun, president of the Center for Responsible Lending, a consumer advocacy group in Durham, N.C.

It’s not just a problem for borrowers with bad credit.

Foreclosures devalue nearby homes and entire neighborhoods. A study by the Center for Responsible Lending predicts that a record number of foreclosures in Virginia will cause 1.1 million homes to lose $4.2 billion in value. In Loudoun County alone, 28,877 homes would lose nearly $180 million in value.

“There’s a huge spillover effect,’’ Calhoun said.

LoudounExtra.com staff and staff researcher Meg Smith contributed to this report.

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