Losing their house in 2005 still haunts Rockford couple
Foreclosures increased 38 percent between 2005 and 2006 in Boone Winnebago and Ogle counties, from 661 to 912, according to county records. Put another way: 7,190 homes and condominiums sold in the Rock River Valley in 2006, meaning it’s possible nearly 13 percent sold because the owner no longer could afford the home.The foreclosure epidemic is not just a local problem. The North Carolina-based Center for Responsible Lending estimated that more than 2 million “subprime” borrowers will lose their homes to foreclosure by the end of 2007. Subprime borrowers are like Clarice and Anthony: people with less-than-perfect credit histories filled with bankruptcies or accounts taken to collection.

Losing their house in 2005 still haunts Rockford couple

By Alex Gary
ROCKFORD REGISTER STAR
Click here for more information about Alex Gary

ROCKFORD — For most families, the day they buy their first home is to be cherished, with pictures for the scrapbooks and housewarming parties with the new neighbors.

For Clarice, who bought a home on Rockford’s near west side in 2005 with her then-fiance, Anthony, she’ll remember it as a day she couldn’t stop crying.

A set of conditions — her husband had a bankruptcy in his past, questionable advice from a real estate agent and mortgage broker, and haste to get into a home — led the couple to make what turned out to be a huge mistake, one that still haunts the couple.When it came time to sign for the home, they were looking at a mortgage of 11.85 percent, more than double what then was the national average of 5.65 percent for a 30-year mortgage.

“I didn’t want to take the keys. I was crying. I didn’t want the house, not at that price,” Clarice said. The Register Star agreed not to use the couple’s last name. “But we prayed and my husband said, ‘God wants us to have this house.’ ”

The couple, who run a home-based business,couldn’t make even their first payment. Within six months, the financial institution that had bought their loan started foreclosure proceedings.

It’s a sad story, one that is becoming far too common in the Rock River Valley.

Foreclosures increased 38 percent between 2005 and 2006 in Boone Winnebago and Ogle counties, from 661 to 912, according to county records.

Put another way: 7,190 homes and condominiums sold in the Rock River Valley in 2006, meaning it’s possible nearly 13 percent sold because the owner no longer could afford the home.

All spectrums
Families face foreclosure for a variety of reasons. In parts of the country where housing prices are four to five times higher than Rockford’s, some people with healthy incomes lose homes because they used creative financing to get houses in vain attempts to “keep up with the Joneses.”

A look at the foreclosures filed in Winnebago County by ZIP code since the start of 2006 showed no areas are immune.

In Roscoe, ZIP code 61073, the median household income is more than $79,000 and the average home value, — $206,191 — was tops in the county in 2006. Still, that ZIP code saw 19 foreclosures since 2006.

Rockford’s east side, ZIP 61114, has a median income of $75,933, and 21 families lost homes in foreclosure.

Income is a factor. The four poorest ZIP codes in Winnebago County — 61101, 61102, 61103 and 61104 — accounted for 46.3 percent of the 629 filings in the past 15 months. The median household incomes in the four ZIP codes range from $32,297 to $45,209.

Worse yet to come?
The foreclosure epidemic is not just a local problem. The North Carolina-based Center for Responsible Lending estimated that more than 2 million “subprime” borrowers will lose their homes to foreclosure by the end of 2007. Subprime borrowers are like Clarice and Anthony: people with less-than-perfect credit histories filled with bankruptcies or accounts taken to collection.

Subprime borrowers face bigger odds to keep their houses. In Clarice and Anthony’s case, if their mortgage called for an interest rate of 5.65 percent the couple would have paid slightly more than $400 a month in principal and interest for their $70,000 home. The mortgage they signed meant they had to pay about $710 a month, before property taxes.

Bob Campbell, who heads the Rockford Affordable Housing Coalition, the area’s federally certified organization to help people facing foreclosure, said Anthony and Clarice’s story was “one of the more extreme stories that I’ve heard, but I honestly would not call that the worst loan that we’ve seen.”

The Center for Responsible Lending analyzed subprime mortgage loans from last year in 378 metropolitan areas in the U.S. It estimated 21.4 percent of those loans in Rockford will end up in foreclosure. That ranked the Rockford area 22nd in the nation, highest in Illinois and the second highest in the Midwest.

Campbell said his organization is stretched to its limit and those in need continue to walk through the doors.

“We’ve seen a 28 percent increase in calls for foreclosure prevention in the first three months,” he said. “Last year we nearly doubled our foreclosure prevention counseling. ”

Nationwide, thousands of homeowners who got into their houses through option adjustable rate mortgages, where they were able to pay a low mortgage rate for a short time before rates were adjusted upward, will see their rates raised this year.

From 2003 to 2005, the percentage of nontraditional mortgages comprising mostly interest-only and payment-option ARMs grew from less than 10 percent of all residential mortgage originations to about 30 percent, according to the Government Accounting Office.

The hope of most homeowners was that by the time the higher rates kicked in they’d could refinance. But housing values have flattened in most of the country and have fallen in some formerly hot housing markets. Also rising foreclosures have driven many lenders out of business and caused loan underwriters to tighten credit standards, shutting out many who qualified for loans just two years ago.

Marve Stockert, executive director of the Illinois Association of Mortgage Brokers, which has about 1,000 member institutions, said there is no doubt 2007 is going to be a tough year.

“In the next 12 to 15 months, people are all of a sudden going to see their payments go up 15 percent,” Stockert said. “People are going to be stretched way beyond their limits.”

Todd Kudlacik of Byron, who, according to a Register Star database of real estate transactions, has bought 81 homes and sold 74 homes on Rockford’s west side since the beginning of 2005 through his Rockford-based company, T.K. Properties, said the market on the west side of Rockford is going to be flooded with homes for sale, cheap.

“The foreclosures have already happened,” Kudlacik said. “What’s going on now is banks are building a portfolio of houses and they are going to turn them loose all at once.”

That would seem to be a good thing if you do what Kudlacik does.

He buys homes at lower prices, invests in repairs, keeps many as rental properties and sells some at higher prices to keep a strong cash flow.

The home Clarice and Anthony bought was such a project. According to Winnebago County records, their home was sold in June 2004 after a foreclosure for $39,000. The new owner — not Kudlacik — then sold to Clarice and Anthony a year later for $70,000.

Kudlacik said this is actually the worst time to get into home restoration.

“There aren’t many buyers out there when you are finished,” he said. “I bought a group of seven foreclosure houses last week and I walked through and saw that three had been rehabbed. The owners bought them, poured a bunch of money into them, got over their heads and lost them.”

Market forces
USA TODAY talked to a homeowner in Atlanta who never paid attention to the legal notice pages that are increasingly filled with foreclosure notices and skipped newspaper articles about the trouble with subprime loans.

Now Atlanta’s Danice Clark cares deeply. She has been trying to sell her home in an upscale subdivision for five months. She cut the price from $359,000 to $334,900 and still hasn’t received an offer. The problem is her street is dotted with four foreclosed homes lenders are trying to unload for less money.

“It’s truly affecting the sale of my house,” Clark told USA TODAY. “Why pay full price for my house when you can pick up a foreclosure for $30,000 or $40,000 less?”

A Rock River Valley Realtor says the large number of foreclosed homes is not bringing down prices locally.

“It doesn’t drive down the prices of the good homes, the ones in move-in condition,” said Debbie DeMars, who sells homes for Dickerson & Nieman Realtors. DeMars does much of her business in the upper-income Roscoe area. “I’ve got a foreclosed home in Hinkle’s (Wooded Acres), asking for $285,000. A house three streets down sold for $319,000. I deal a lot in Roscoe area and if the neighborhood is good it doesn’t matter what the house down the street sold for.”

Dennis Sweeney, executive vice president of the Home Builders Association of the Greater Rockford Area, though said more homes on the market has to be slowing price appreciation.

“It’s simple economics, the greater the supply, the more it tends to lessen prices,” Sweeney said. The numbers agree. The average sale price of homes and condominiums in Boone, Ogle and Winnebago counties had gone up by at least 4.1 percent each year since 2000 until last year, when the average price ended up 1.8 percent at $143,270. The average price through March 2007 is running 1.7 percent lower than 2006.

The housing market slow down is hurting Sweeney’s industry. The number of new home permits pulled by builders in Boone and Winnebago counties have been down year-over-year for nine straight months and the total taken out in February — 58 — was the lowest monthly total since January 1999.

“Some of that has to do with the weather,” Sweeney said, “but there’s no question the foreclosures are having a huge impact on the market.”

One happy ending
Not every foreclosure filing ends up with the owner on the street. Realtors who specialize in “short sales” have been doing a brisk business. In a short sale, the house is sold for less than what is owed on the mortgage because the lender has agreed to accept the proceeds and forgive the rest of the debt. It allows the family to move on without a massive debt on their records.

Anthony and Clarice did not have to go that route. They turned to Family Credit Counseling Services for help with budgeting and the Rockford Affordable Housing Coalition for assistance in working out a deal with the loan company. Clarice also called area churches. One found a donor willing to give them $1,500. That was enough to keep them in the house while Campbell and his staff helped them work out a repayment program.

“That happened literally at the 11th hour,” Campbell said. “It was the last day we could have done something. ”

It’s been a month-to-month struggle, but Anthony and Clarice have kept their house for two years even though they still are paying that onerous 11.85 percent mortgage payment. When friends and clients mention they are buying a house, they pull out all of the information they’ve collected in their journey.

“Knowledge is power and I went into this with no knowledge,” Anthony said. “I relied on people who didn’t have our best interests at heart, but in the end we signed the papers. We didn’t know where to turn to ask questions. We’ve learned there are lots of resources out there. You have to get the knowledge and then you have to apply it.”

Assistant Business Editor Alex Gary may be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or at 815-987-1339.
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