Homeowners struggling to pay

4/10/2005

Struggling economies in Ohio and Michigan have pushed up mortgage delinquency rates to some of their highest levels in nearly two decades.

Area lenders and others explain that homeowners, beset by job losses and not helped by slow-to-appreciate home values, are starting to lose the battle to stay afloat. The battle is complicated, in many cases, by crushing credit-card debt.

"The housing market is reflecting a local economy which is not as strong as in the rest of the country and, if you get into trouble, you're not able to sell your home at a profit and move to a smaller home or a less expensive one," said Michael Fratantoni, a research director for the Mortgage Bankers Association.

The national trade group found mortgage delinquency rates at the end of last year had climbed past 6 percent for Ohio, the same as two years earlier, and nearly 6 percent for Michigan, also the highest since the end of 2002, when the country was feeling the impact of the latest recession and the economic slowdown after the terrorist attacks of Sept. 11, 2001.

National mortgage delinquency rates also have been rising but are still well behind 2002 levels. The rates do not include home-equity loans.

Ohio and Michigan rates are higher than the national average of 4.56 percent and place the two states among the top 12 in mortgage delinquencies, according to the mortgage bankers group.

In the Midwest only Indiana has a higher rate, at nearly 7 percent. Mississippi has the nation's highest rate, nearly 9 percent.

The last time Ohio and Michigan had higher rates was in the late 1980s, also a bad economic period for the region.

Nationally, slightly more than 1 percent of all home loans were in foreclosure at the end of last year, according to the mortgage group. Ohio's rate is three times as high and Michigan's is half a percentage point higher.

In a separate report last week, a listing service called Foreclosure.com found a continued swelling in foreclosure activity in Ohio and Michigan. The two states led the nation last month in the increase in new foreclosures compared with February. Ohio had 2,470 new foreclosures and Michigan 2,390. Nationwide, there were 28,190.

"What you see in the Midwest are people who usually pay their bills and whose house payment is a priority for them, so when delinquency or foreclosure hits, it's typically because of something pretty serious," said Reid Jelalian, sales manager for the Toledo and Ann Arbor markets for Charter One Bank.

At the end of last year, Ohio's unemployment rate was nearly 6 percent and Michigan's was 7.5 percent, well above the national figure of 5.4 percent.

Also hurting area homeowners is the slow increase in the value of houses, which means people can't sell their dwellings at a profit to help pay bills, said Mr. Fratantoni, of the mortgage group.

For example, the United States had an increase in home values of more than 11 percent last year, but Ohio's and Michigan's averages each were about 4 percent.

Ron Patton, senior vice president of lending for the Toledo Area Community Credit Union, said he rarely, if ever, saw delinquent mortgage payments until after the attacks of 2001. Even now, he said, the total of consumer debt delinquencies for his institution is about 1 percent.

"A lot of the ones we've seen since then are because they've lost their jobs and there's no hope in sight of getting their jobs back," he said. "We've also seen cases of divorce or death that have caused problems."

Although job losses, unexpected medical bills, a divorce, or a spouse's death are all reasons for homeowners to get behind on mortgages, another insidious cause is appearing more frequently: staggering credit-card and other consumer debt.

"We see an awful lot of credit -card debt. I'm sure everybody's feeling pressure in trying to accommodate both their mortgages and credit cards sitting out there," said Ralph Vinciguerra, president of the Northern Ohio Investment Co. in Sylvania.

He said his company has not noticed an increase in delinquent home loans, but has experienced a jump in late payments from clients juggling a number of bills.

"They're trying to create a balancing act to where they don't want the mortgage to go into default, but maybe they're bringing in their payment a day before it's considered delinquent."

Some people refinance their mortgages, taking cash back to help pay off other bills, he said, but unless home values appreciate more rapidly, refinancing and having enough left over to pay bills will be difficult.

John Walters, director of Community Credit Counseling Specialists in Toledo, said some people mistakenly pay credit card bills ahead of mortgages because collection agencies for the card companies are much more threatening than the letter a lender sends when a home loan is past due.

"It's an example of the squeaky wheel gets the grease, but [the homeowners] get their priorities out of order," Mr. Walters said.

Homeowners facing a cash crisis, he said, always should pay the mortgage first and utilities second, and then buy food and cover transportation costs.

"They have to have these priorities first," Mr. Walters said.

Contact Mary-Beth McLaughlin at: mmclaughlin@theblade.com or 419-724-6199.