Home foreclosures are on the rise
Hubbard County's foreclosure rate continues to climb. For the first quarter of 2010, it rose 60 percent over the same quarter last year.
The report, issued May 3 by HousingLink, a nonprofit agency that distributes affordable housing information to service agencies, tracks foreclosures by sheriff's sales.
Minnesota foreclosures, during the first quarter of 2010, rose 31 percent over the same quarter in 2009 and were up 14 percent over the last quarter of 2009. Hubbard County saw 15 foreclosures during the first quarter of 2009; 2010's first quarter yielded 24.
Mark Hewitt, CEO of Northwoods Bank in Park Rapids, said sometimes actual foreclosure numbers can be a bit elusive to come by.
"How do you measure what a foreclosure is?" he questioned. "There's the publication, there's the sheriff's sale and then there's the actual possession of the property.
"In many cases we get paid somewhere in between," Hewitt said. "For instance in March we had two foreclosures that were paid back in full before the sheriff's sale redemption was held."
An actual foreclosure can take up to a year from the time of the original mortgage default to eventual eviction from the property.
Hewitt says he's not sure the latest numbers tell the whole foreclosure story - or the cause.
"You know, it's kind of a mixed bag of things," he said. "Our sense, that when we look at our personal position, things aren't getting worse but they aren't really getting better yet either."
The analyst who compiled the foreclosure information for HousingLink, surmised continuing unemployment was the culprit.
The numbers show foreclosures in the state were at the second highest level seen "during the current housing crisis with a total of 6,879 foreclosures. The only higher period was (the second quarter) of 2008, when 7,349 mortgages were lost via sheriff sale auction," the report stated.
"A lot of it is that your normal issues or people have run into problems," Hewitt theorized.
"A little bit of it would be job-related; some people just have too many obligations," he said. "They used to be able to get out of it by selling their property or refinancing it and now those options are gone. I think that's the biggest cause, then, because housing values have dropped here like they have everywhere."
"Appraisals have dropped," he said. "Just this year we've seen drops in some of the properties we've been involved with up to 30 percent.
"A year ago we weren't seeing in the appraisals, the drops," Hewitt said. "We're required when we get property back now through foreclosures, to get a current appraisal and we're getting numbers that are substantially lower. They have to use comps and the foreclosures are up, there's a lot of distressed sales, so it kind of drags itself down."
All through the United States, agents and homebuilders are complaining too many appraisals are coming in low, killing potential sales.
The National Association of Realtors said this spring nearly one in four of its members has reported clients losing a sale due to questionable appraisals. The National Association of Home Builders echoed that, indicating low appraisals were scuttling one-fourth of all new home sales.
The groups say almost 40 percent of all home sales this year are foreclosures or "short sales," in which the property sold for less than the mortgage.
"The sales that we've been involved with where we've either had property or it's been in foreclosure have been substantially below previous appraised values," Hewitt said.
So, if a homeowner is trying to sell a home in a neighborhood where foreclosures and short sales dominate, an appraiser could determine the home is actually worth less than what some buyers could be willing to pay.
Under new industry rules designed to limit conflicts of interest that can skew an appraisal, the rules bar mortgage brokers from ordering appraisals themselves. They must now go through a mortgage lender.
Lenders can hire appraisers, but they must erect "a Chinese wall."
That prevents banks from talking to the appraisal management companies about the properties' valuations.
If those appraisers come from outside the area, complaints have arisen that outsiders don't know where to find appropriate properties to serve as those comparable sales.
Park Rapids realtor Justin Clack said low appraisals haven't negatively affected many local sales yet.
"When there are foreclosures and the banks list them with us, they seem to sell pretty well," he said. "It's not real difficult to sell a foreclosure. Usually they're priced very reasonably."
But it seems the endless parade of foreclosed properties shows no signs of slowing. And ultimately those discounted bargains could, as Hewitt says, drag the whole housing market into the cellar.