The number of foreclosure actions in Spokane County fell last year, ending a decade-long run-up in mortgage defaults.
Some Inland Northwest observers say the turnabout might signal the start of a downward trend in foreclosures that could last a number of years.
The bad news, they say, is that the number of foreclosures here still is too highlast year they surpassed 1,000 for the fourth consecutive year.
Its an improving condition that remains at an unacceptable level, says Randy Barcus, chief economist for Spokane-based Avista Corp.
Also, many of the factors that have contributed to the record-high foreclosure activity in recent yearssuch as subprime and predatory lendingstill are prevalent in the marketplace.
The Spokane County Auditors Office recorded 1,030 foreclosures on deeds of trust last year, down 11 percent from the record 1,153 foreclosures here in 2002. Last years level was the lowest since 2000, when the county recorded 1,001 such actions.
Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, attributes the decrease in foreclosures to sustained low mortgage rates and a healthy Spokane-area real estate market. Home sales have increased substantially during the past two years, and the number of homes on the market has remained low, pushing prices higher.
Also, with low mortgage rates, he says, some homeowners who were struggling to make monthly payments at higher interest rates have been able to refinance and lower their payments.
Homeowners who choose to place their homes on the market when faced with foreclosure actions often are able to sell their properties in the currently brisk market before foreclosure proceedings conclude, he says.
With the value of real estate growing, struggling homeowners are more likely to exhaust their resources before walking away from their homes, he adds.
As the market overall has improved, with a lot of activity and price appreciation, there is strong reason to avoid being foreclosed upon, Crellin says. They have something to lose now.
Phil Kuharski, a longtime observer of Spokanes economy, says a subtle increase in employment also has helped to curb foreclosure activity. Those who couldnt make house payments because they were out of work have found employment.
Also, he says, a gradual tightening of loan underwriting has helped the foreclosure trend recede. Lenders nationwide have become somewhat pickier about who they lend money to because of losses stemming from foreclosures.
Lenders dont like the problem of foreclosures, Kuharski says. They dont make money on foreclosures.
Barcus says foreclosures spiked here in tough economic times during the 1970s and 1980s. Once those difficult economies improved, however, the number of foreclosures dropped precipitously. He says all of the factors that led to a drop in foreclosures in the early 1990sstrong home sales and price appreciation among themare reappearing.
That would lead me to think well have a drastic drop-off in foreclosures over the next couple of years, says Barcus, who early last year predicted that the number of foreclosures would fall in 2003. Its tough to predict, and theres no equation, but it wouldnt surprise me to see the number of foreclosures this year drop to 500 and fall further to 250 in 2005.
Kuharski says that historically, between 150 and 300 foreclosures a year in Spokane County is normal.
He says, however, theres no assurance that foreclosures will drop sharply because many of the factors that contributed to their rise have been in play for years.
Such factors, Crellin and Barcus say, include a variety of lending packages that leave homeowners more vulnerable.
Subprime lending, in which home loans are approved at higher interest rates and for high upfront fees to households with poor credit scores or high debt-to-income ratios, remains prevalent in the Spokane market, they say.
Crellin says hes heard of cases in which predatory lenders use such programs to take advantage of immigrant groups moving to Spokaneand other communitieswho speak English as a second language. Little, if anything, has been done on a regulatory level to stop such activity, he says.
Also, above-board first-time home buyer loan programs are designed to make it easier for home buyers to get into a home with little or no money down. Crellin says such programs have been successful in their missionincreasing home ownership. Because such homeowners have little equity in their properties, however, they have a harder time avoiding foreclosure if they falter financially.
The downside risk is that well have some foreclosures associated with such programs, Crellin says.
Barcus also blames foreclosure activity partly on home-equity loan programs in which people can borrow up to 125 percent of a homes value against their home equity. Such loans can cause a homeowner to stay upside down in a homewhere they owe more than the property is worthfor years.
The financial markets are still very, very adaptable to meeting all kinds of peoples wants and wishes, Barcus says. Buyers need to be very educated and understand the pitfalls.
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