With the financial world in crisis, the housing market in Delaware continues to erode to the point where it's not just sub-prime borrowers that are at risk: prime borrowers are also feeling the pressure.
Statewide foreclosure filings topped 400 in August, the third time in state history that level has been reached, and New Castle County led the charge with 242 filings, according to the Delaware Department of State.
But the number of foreclosures pales in comparison with the number of potential foreclosures yet to come.
More than 10,000 Delawareans have delinquent mortgages and almost 7,000 are a month late, according to the Mortgage Bankers Association. They will become foreclosure filings if they reach the four-month-late mark.
Prime borrowers have seen the biggest increase in delinquency -- a 78 percent increase from last year -- and nearly 3,000 prime mortgages in the state are seriously delinquent, according to the Delaware State Housing Authority.
Those prime foreclosure filings have hit home in Hockessin, said Roslyn Smith, housing counselor at the Hockessin Community Center.
The center’s phone has been ringing off the hook for months, she said. There is a backlog of 35 cases.
About half the people who visit the community center, desperate for a mortgage workout plan, are prime borrowers who have good credit, she said.
Many of the McMansions that pepper Hockessin’s housing developments were purchased with adjustable rate mortgages because those were the only types of loans available for high-priced housing, she said.
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By the numbers: Prime mortgages: 141,914 Seriously delinquent prime mortgages: 2,994 Increase from last year: 78 percent Subprime mortgages: 17,002 Seriously delinquent subprime mortgages: 2,583 Increase from last year: 45 percent (March, 2008 data) |
The interest rates jumped, and that hurt borrowers, but what has crippled wealthier homeowners has been the fallout from financial institutions, Smith said.
“Their investments are not working out and it is causing a domino effect,” she said.
The effect has also been felt by employers, who have laid off hundreds of Delawareans in recent months; the state’s unemployment rate jumped to 4.9 percent in August, up 1.7 percent from last year, according to the Department of Labor.
Many borrowers who have good credit but lose their jobs, find it next to impossible to readjust their mortgage because of the income loss, Smith said. It’s a Catch-22, she said, because they are the people who need help the most.
The majority of option adjustable rate mortgages were made to borrowers with good credit, and the newest wave of foreclosures has been partly caused by those prime borrowers defaulting on their loans, said Rashmi Rangan, executive director of the Delaware Community Reinvestment Council.
What’s worse, many borrowers can no longer refinance their mortgages because home values have dropped substantially, meaning they owe more on their home than it is worth, Rangan said.
Thanks to an over-saturation of homes on the market, home prices in New Castle County slid 2 percent in August, according to Prudential Fox & Roach.
Many borrowers who paid too much for their homes to begin with can do little but watch values dip as their mortgage rates jump, she said.
“Then you’re stuck. There is no way out,” she said.
In addition, many borrowers with good credit are having trouble making mortgage payments because they spend too much of their income on housing, she said.
The Delaware State Housing Authority reports that someone earning average income in New Castle County should be able to afford a $210,000 mortgage, but the average price of a home is almost $230,000.
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Housing Counseling Agencies First State Community Action Agency: (302) 498-0454 Hockessin Community Center: (302) 239-2363 Housing Opportunities of Northern Delaware: (302) 429-0794 Neighborhood House: (302) 652-3928 YWCA of Delaware: (302) 224-4060 |
Experts say borrowers should not use more than 33 percent of their monthly income to pay their mortgage, Rangan said, but many large homes with nontraditional mortgages siphon off much more than one third of their owners’ incomes.
Add to that the rising costs of gas, food and dozens of other durable goods and the stage is set for disaster, she said.
“If someone was spending 60 percent of their income on a mortgage, what did they have left when prices rose?” she said. “They had nothing.”
She expects the state's foreclosure crisis to get much worse before it gets better and urges anyone having trouble paying their mortgage to seek help.
