Here is a typical example of a family in crisis. The difference is, this York, PA family was able to keep their home.
Families struggle to keep their homes
By SEAN ADKINS
Daily Record/Sunday News
Article Launched: 04/15/2007 01:25:00 AM EDT
Barry and Lisa stopped when they reached a house with a black garage door.
Their 8-year-old son, Clay, paused a few steps behind to pick up a stick, oblivious to why his parents halted.
"Hey, you see that?" Barry Cameron, 36, said to his wife, Lisa, 30. "They put a rocking chair on the porch."
When the Camerons lived there, they would stand on that very porch.
But it's not the Camerons' house any more.
The couple moved from their three-bedroom home on Solar Drive in January after they could no longer afford the mortgage payments.
"I had two boys," Barry Cameron said. "I mean, I didn't know what do. I was a nervous wreck."
The family used its 2006 income tax return to put a payment on the mobile home and signed a contract to pay the rest of the cash once its house was sold.
"We thought about putting the money into the house," Barry Cameron said, "but I thought we should just loosen our load and make it easier. We put it into something we could afford."
Soon after the Camerons moved into a mobile home within sight of Solar Drive, their delinquent home loan fell into foreclosure.
Other residents have faced similar struggles.
The Camerons were among 1,813 York County residents who defaulted on their mortgage loans last year - a 112 percent jump in foreclosures from 2005. Experts, locally and nationally, have been tracking the foreclosure trend that's affecting homeowners and lenders.
As a result, lenders have tightened their income guidelines, making it more difficult for people with less-than-perfect credit to score a loan, said E. Robert Levy, executive director and legislative council for the Mortgage Bankers Association of Pennsylvania.
The lack of loan repayments by people who are in foreclosure have tightened the available money that banks have to dole out to prospective homebuyers, he said.
Economic factors such as the loss of a job, divorce and medical problems stand as the main reasons for foreclosures, said Ed Petrie, owner of IPower Source Inc. in York Township. His company is a foreclosure prevention and real estate investment firm. Those factors blend together, Petrie said.
But subprime home loans - which is what the Camerons had - are pushing the rise in foreclosures, experts say.
Potential homeowners with poor credit records or other financial difficulties will not qualify for the best, or prime, mortgage interest rate. The lender might offer that person a subprime mortgage in which the interest rate could be a full percentage point higher than a conventional loan, Petrie said.
In some cases, subprime loan holders take an adjustable rate mortgage to lower their interest rate.
Two years later, when the rate is set to adjust to a higher percentage, those people who still have poor credit records find that they have trouble refinancing their mortgage to try to get a lower interest rate.
"The subprime foreclosure rate is driving the rising foreclosure rates within the county," Petrie said.
Roughly 70 to 80 percent of Petrie's clients are living with subprime mortgages.
When the Camerons inked their loan in August 2005, their monthly payment was $732.
Nearly two years later, a letter from their lender told them that their rate was set to increase and could balloon their loan payment to between $900 and $1,000 per month.
A poor credit score prevented the couple from refinancing their loan.
"The mortgage company kept calling us, and we didn't answer the phone," Lisa Cameron said. "We were already two months behind. I was stressed."
Experts say that many lenders offered a variety of products, including subprime mortgages, as a way to increase their number of accounts.
Low expectations
About 18 months ago, the average prime interest rate for a 30-year fixed mortgage sat at 5.94 percent.
The low rates gave many lenders incentive to cash in on the high number of people then interested in buying a home.
But some of those people had
poor credit histories or other financial difficulties that would have prevented them from clutching the keys to a new house.
So, many lenders did away with strict loan underwriting standards to allow those people to at least apply for a mortgage.
"Over the course of the last couple of years," Petrie said, "the underwriting guidelines have become so loose and lax that lenders were giving out money to just about anybody."
For example, some lenders subscribed to a Renter's Express program in which the applicant didn't need to verify a payment history, said Christi Heffelfinger of Comfort Home Mortgage in York Township.
As a rule, lenders take into account credit scores, mortgage history and debt-to-income ratios when qualifying a person for a loan, Heffelfinger said. Lenders also agreed to swap income for credit scores to help residents secure a loan.
Sometimes it played out like this:
A couple applies for a loan and the husband makes more money but sports a lower credit score. The lender could place the wife, the one with the good credit score, as the primary name on the loan and claim that the husband makes just $1 less than his wife, Heffelfinger said.
That particular option is no longer available to mortgage applicants, she said.
"Think about how low the interest rates were for such a long period of time," Heffelfinger said. "People were buying houses that they would not necessarily be able to afford in this marketplace."
Residents who had good credit at the time of their mortgage also remain in danger of foreclosure.
A resident who agreed to a 15-year fixed loan in 2005, when the interest rate was about 5.77 percent, may opt to consolidate debt by refinancing.
"Their interest rate might be double from what it was back at that time, which would make their payments significantly higher and may keep them from qualifying for that loan now," Heffelfinger said. "Just because a person has good credit doesn't mean that they don't have debt."
More foreclosures mean more people having to leave their homes.
The trend means that, for anyone looking to buy a house now, the high number of foreclosures have forced some lenders to scale back the number of loans they award.
For example, a year ago, some subprime lenders offered a 100-percent financed loan to people with a 575 credit score, considered low by most loan standards.
Today, few lenders would agree to a 100-percent financed mortgage for anyone with a credit score less than 620, Heffelfinger said.
But the rise in subprime mortgages is not the principal factor for the increase in foreclosures, Levy said.
Many lenders are willing to work with borrowers who run into various financial difficulties to avoid foreclosure, he said.
Lenders lose money on foreclosed properties. Aside from not receiving monthly payments, banks are the ones who have to pay for attorney fees and repairs to maintain the property.
Loss of a dream
Barry Cameron couldn't tell you what his credit score was before his wife, Lisa, spotted an advertisement in a local newspaper informing residents that they could rent-to-own.
"Our credit wasn't the greatest," he said.
Still, they responded and soon scored a mortgage.
The couple had never owned a home before and wanted to stop renting.
Barry Cameron, a baker at Giant Food Stores in Dover Township, cashed in his life insurance policy and his retirement plan to secure a $13,000 down payment for his $102,000 house.
Hours before settlement, the owner of the Camerons' soon-to-be home told them to bring more money to the table.
"They fumbled around with words we didn't understand," Barry Cameron said. "We only had $100 left in our account."
Ultimately, the Camerons paid an extra $5,000 for the house, money that covered back taxes and other expenses. Those extra funds were folded into their loan.
After getting into the house, the couple's luck didn't improve.
"A majority of my clients will have two or more triggers that will push them over the edge," Petrie said.
Lisa Cameron had a car accident, which cost the family a $500 insurance deductible, cash that Barry Cameron had to borrow.
The Camerons then fell three months behind on their mortgage and needed to come up with $3,000 to save their house.
"The mortgage company threatened to put a lock on our door if we didn't come up with the money," Barry Cameron said.
The family used its 2005 tax refund to avert
foreclosure.
But problems continued.
"In late 2006, we ran into the same situation again," Barry Cameron said. "I felt kind of defeated."
Lisa Cameron had another car wreck and eventually lost her job at Wal-Mart.
"We just weren't able to keep up with everything, prices just kept going up," Barry Cameron said. "It was getting to the holidays and with the higher gas bills, we were broke. We didn't have anything."
The Camerons faced foreclosure on their home and no prospects on where or how they would live.
Instead of losing their home and walking away with no money, the couple turned to IPower Source Inc.
A helping hand
Petrie recommended to the Camerons a deal in which the couple could sell their home and still make money for a fresh start.
By the time the Camerons contacted Petrie, the family was about two mortgage payments behind and was coming up fast on the third month.
Typically, a bank issues a notice of default when a person becomes three months delinquent on a loan.
Petrie negotiated a deal and called a short sale, in which the lender agreed to forgive a portion of the loan.
The property sold, and the Camerons got enough from the sale to pay back bills.
A foreclosure on the family's record would have followed them for seven years and would have dropped their credit score by 100 to 200 points, Petrie said.
"Foreclosure sucks the life out of people," Petrie said. "It's dramatic and the most damaging event your credit status can encounter. It's worse to have a foreclosure on your credit than a
bankruptcy."
At times, the Camerons drive the less than a mile it takes to get from their mobile home to Solar Drive just to check out their former home.
Lisa Cameron said she is more comfortable in her mobile home than her house.
The family has more disposable income and does not have a mortgage payment.
The rent for the lot their mobile home sits is $360 per month.
"At least when we moved, we didn't have far to go," Barry Cameron said.
Reach Sean Adkins at 771-2047 or sadkins@ydr.com.
