Loan balances above house values burden Toledo-area owners

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It's a grim picture.

A Sylvania couple, in 2004 amidst a housing boom, refinanced their mortgage for more than they owed on their 72-year-old two-story, four-bedroom house at 5158 Bilby Way.

An independent appraisal found the house to be worth $130,000, and the lender was willing to lend $145,000, which the couple agreed to even though the house's Lucas County tax value was $102,300. They spent the money that exceeded their debt on the previous mortgage.

The husband and wife, who spoke only if they were not identified, said the husband retired last year because of illness, and when they decided to sell their home of 29 years, they found that its value was barely $90,000.

“I don't see how it went down that much in those years. It should have gone up,” said the woman, who now lives in Lima, Ohio. Their lender would not accept one purchase offer of just $85,000 to pay off their loan, she said.

But local mortgage lenders and real estate agents said the couple should not have been too surprised.

This summer, one report shows, 35,660 homes in metro Toledo — just over a quarter of houses with mortgages — had higher amounts of unpaid mortgages than the value of the house. The real estate industry characterizes such negative equity as being “under water.”

An additional 8,300 local homes were worth less than 5 percent more than the amount owed on the mortgage, termed near negative equity, according to figures released last month by mortgage data firm CoreLogic, of Santa Ana, Calif.

In Ohio, 435,300 homes and in Michigan, 524,500 homes had negative equity this summer, CoreLogic estimated. Nationally, 11 million homes fit that label, the report shows.

“It's bad out there,” said Shane Marzullo, a mortgage lender with Greentree Mortgage Services Inc. in Holland. He knows of many people who have negative equity.

“The Willys Parkway area is bad too. You had homes selling for $80,000, $90,000, and $100,000 a few years ago. Now you're lucky if you can get $50,000 for those homes,” he said.

Keith Foster, director of enforcement for the Fair Housing Center of Toledo, said his agency sees about 400 clients annually and, “out of all the people we see, at least 50 percent of them are under water on their houses.”

Elusive fix

For people who have trouble making mortgage payments, especially if the monthly bill is too high because the loan has a high interest rate, getting a fix may not be possible if the value of the house is less than the amount needing to be refinanced.

The situation is compounded in the tough economic climate because high numbers of homeowners are not paying their home loans on time.

A recent Mortgage Bankers Association study found that 10 percent of Ohio and Michiganhomeowners are not paying on time, and more than 62,000 in Ohio and 76,000 in Michigan are 90 days or more late in their payments, setting the stage for foreclosure.

The Sylvania couple, strapped for cash, eventually stopped making mortgage payments and walked away from the home, which is now in foreclosure.

Debbie Katich, a Danberry Co. real estate agent who tried to sell the house, was shocked that it appraised at $130,000 in 2004 but wasn't surprised that the mortgage last year was so far under water.

“There's no way that house would have sold for $130,000 — even on a good day,” Ms. Katich said. “It needs a new roof or gutters.”

But prior to the national recession rearing its head in 2007, lenders were willing to let people refinance for the full value, or even 25 percent more than the value, of their houses.

Some loans had low rates initially, but when the scheduled rate increases occurred, some owners who suffered job loss or declines in work hours couldn't afford the higher payments and found they were unable to refinance at lower rates because their house value had fallen too much.

The under-water problem is seriously undermining the area housing market, local experts said.

Jack Howard, head of Savage Mortgage Services in Toledo, said, “We see it in the refinancing requests all the time: people who could benefit by a lower interest rate, but they owe too much on their loan and their housing value has plummeted.”

Jeff Brader, president of the Ohio Mortgage Banker's Association, said home loan rates are at or near record lows, but not everyone can take advantage. “That is one of the major stumbling blocks to refinancing — having no equity or negative equity,” he said.

Michigan's woes

The problem is worse in Michigan, where nearly 40 percent of homes with mortgages are under water, according to CoreLogic. That under-water rate is the fourth worst in the nation, behind Nevada, Arizona, and Florida.

Joanne Misuraca, executive director of the Michigan Mortgage Lenders Association, said she cannot verify CoreLogic's numbers that show $170 billion worth of home loans in the state are under water.

But, she said, “It's a bad situation and I'd say those numbers are probably accurate.”

Chris Bezeau, senior loan officer at mortgage lender Northern Ohio Investment Co.'s Monroe office, said Michigan's housing situation probably will get worse before it gets better.

Indicative of the troubled housing market are late mortgage payments.

Toledoans Tony and Heidi Revels fell into delinquency last year and lost their home at 5652 Gay St. Mr. Revels' hours at work were cut, and late last year, when the couple's payments fell behind by two months, their lender, J.P. Morgan Chase, initiated foreclosure proceedings.

“They absolutely refused to work with us,” said Mrs. Revels, whose family moved out of the house last month and into an apartment.

“We tried to fight it but we ended up losing our house anyway,” she said.

Before foreclosure, the couple's house was under water. It had been appraised at $103,000 during a refinancing in 2005, and the couple had an $84,000 mortgage. The bank recently listed the home for $79,900.

Ralph Vinceguerra, president of Northern Ohio Investment Co., which has its main office in Sylvania, said many past-due mortgage situations could be helped greatly if homeowners were allowed to refinance into today's lower mortgages rates.

But if the homeowner has negative equity, that's not possible, he said. “If you look at Fannie Mae and Freddie Mac, their whole concept was to get people into housing, and that provided 100 percent financing,” he said. “But anybody who borrowed 100 percent of their loan three or four years ago is under water now.”

Shot to the economy

Mr. Vinceguerra said he looked at a recent $215,000 mortgage that a client got a few years ago at 6 percent. “The balance is $189,000, and if he could refinance that at 4 percent, the saving would be $383 a month,” he said.

“Talk about a shot to the economy. That would be much more effective than what the government's trying to do now, but people under water can't refinance.”

There is some help for those with an FHA or VA loan that was written to Fannie Mae and Freddie Mac guidelines. A borrower who had put down 20 percent of the value of the house when the mortgage was written can qualify for a refinance program and refinance up to 125 percent of the remaining loan.

But those who financed 100 percent of the original value do not qualify.

Jon Modene, a broker at ReMax Masters real estate agency in Perrysburg, has been hired by area banks to dispose of foreclosed properties. He recently got two new accounts with 40 listings of repossessed homes.

The foreclosure situation, he said, is contributing to falling housing values and thus to negative equity.

“Yesterday's $90,000 house, the bank tells me to sell it for $45,000. If you own a home nearby and you're under water and trying to sell your home, how do you compete with that?” Mr. Modene said.

“Let the market find the bottom and then rebuild the values. People just want to move on,” he said.

Contact Jon Chavez at:jchavez@theblade.com or 419-724-6128.