The Tacoma area is emerging as the region's worst subprime mortgage lending hot spot. With sales slowing and median prices falling, Tacoma-area foreclosures are rising.
Chris Dunayski isn’t surprised that Pierce County racked up the region’s highest percentage of subprime mortgages last year.
All the owner of High Point Mortgage in Puyallup had to do was watch his competitors. Even as the national housing market was cooling, he said, major lenders sent some of the best salespeople to Pierce County to make loans.
Now, “there’s a definite dilemma,” he said. “A lot (of subprime, adjustable rate mortgages) are going to adjust in November or December. Those people are caught in a no-win situation. Their credit has dropped if they’ve missed payments. They’re not loanable.”
Millions of Americans that took on the popular loans now face losing their houses, as higher interest rates and the nation’s deflated housing bubble make payments unaffordable and selling the property difficult.
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Bundled into securities and sold to investors, subprime loans have also shaved billions from banks and are worrying the Federal Reserve.
While Washington state has been less affected by the problem, the Tacoma area is emerging as the region’s worst subprime hot spot.
According to analysis of loan data by The Wall Street Journal, 31 percent of all mortgages originated there in 2006 were the high-rate loans. That compares with 21.5 percent in Seattle-Bellevue-Everett and 24.3 percent statewide. Nationally, 29 percent of all home loans fell into that category.
Now, with sales slowing and median prices falling, Tacoma-area foreclosures are rising.
A total of 209 trustees deeds were filed in Pierce County in the third quarter of this year, according to DataQuick Information Systems of La Jolla, Calif.
This is considered the last step in foreclosure, where the home is actually lost. That compares with 154 in the second quarter and 86 with the same quarter in 2006.
Experts say Pierce County’s lower affluence and less expensive real estate than King and Snohomish counties to the north are big drivers behind the numbers. Subprime loans were heavily marketed to people with poor credit, few assets and lower incomes. The loans are often used to purchase houses priced below the median for the area.
Dick Beeson, owner of Windermere Commencement Associates in Tacoma, said the loans also became appealing to the large numbers of military personnel in the area. Subprime loans could appear better deals than VA financing, covering 100 percent of a house’s purchase price, with lower funding costs and few strings on income relative to debt.
“People here tend to use that type of financing,” he said.
The loans, usually with an adjustable rate, were popular when housing values were rising and interest rates were low. Owners could often sell a house for a profit before adjustable mortgages went up. Now, however, owners are caught in a trap of a slow market and rates adjusting upward.
Others used subprime loans to cash in equity. But, “if I had to sell my house now it might be less than what I owe,” Beeson said. “Some people were using their houses as credit cards. Adjustable rates are the killers.”
Dunayski estimates that a year ago one out of three borrowers had trouble with their high-rate, adjustable loans. “Now three out of four are having trouble” in Pierce.
The solution of selling the house is less possible in today’s slump.
Homeowners can become trapped in a cycle of missed payments, rising rates, plunging credit score and few financial reserves. Default is often the consequence.
While some lenders are trying to work with borrowers, there are few government programs in place to help. Also, Fort Lewis has no specific program to assist soldiers facing subprime or foreclosure issues, according to a base spokesman.
The cycle is often aggravated by personal tragedy.
“A lot of people are in foreclosure due to health issues or loss of a job,” said Alisha Graham of Signature Planning, a Tacoma company that helps people with debt and identity theft problems. “They don’t have the money to catch back up.”
Graham said this is the worst year she’s seen for clients facing foreclosure, and “it’s not just affecting low incomes.”