More foreclosures expected in already record-breaking year
BOSTON - Housing officials and market watchdogs agree that many more Massachusetts residents are likely to lose their homes before the recent rash of mortgage foreclosures winds down.
As of October there were more than 6,000 foreclosures statewide, three times more than the number of foreclosures during the same time period last year.
According to the Warren Group, a Boston-based company that tracks real estate data, Middlesex County is second only to Worcester County in total foreclosures, which jumped from 345 to 903 since last year.
“Lenders have apparently lost patience with borrowers, and it’s pretty clear that a lot more Bay State homeowners are going to be getting a visit from the Grinch this year,” wrote Warren Group CEO Timothy Warren Jr., in a press release Monday.
The mortgages are called subprime because they are often given to those with poor credit ratings who don’t qualify for conventional loans.
“People expected that this product would have a problem if we got into difficult economic circumstances, but I don’t think people anticipated that we would see as elevated a problem as we have under what happened in a fairly benign economic situation,” said Eric Rosengren, president of the Federal Reserve Bank of Boston, at a MassInc breakfast yesterday.
Rosengren said the recent foreclosures stemmed in part from interest rate spikes after two to three year lower introductory rates expired.
Rosengren said lenders, market analysts and borrowers alike expected that the borrowers would sell their properties or refinance their mortgages before interest rates went up.
But when the housing market took a turn for the worse, borrowers were stuck with the mortgages, and higher payments.
Rosengren gave his speech shortly before U.S. Treasury Secretary Henry Paulson announced that he was finalizing a deal with lenders to extend the introductory rates.
Paulson said it would be a pragmatic response to the worst housing slump in more than two decades, according to the Associated Press.
“I think getting something that gets done sooner rather than later is more important than haggling over the length of the term,” Rosengren said when asked how many years the lenders would be willing to freeze rates.
Although the Federal Reserve Bank of Boston has little power to coerce lenders, Rosengren said he would encourage local banks, many of which stayed away from the initial subprime lending flurry, to help borrowers refinance their loans.
“The only lever we have is to encourage them to take a good look at it, but it’s not just the fed. … I think there are a wide variety of organizations that will hopefully encourage banks to make responsible lending to responsible borrowers,” Rosengren said.
Rosengren estimated that 26 percent of subprime mortgage holders would be able to refinance given their credit scores and current market conditions.
Last week Gov. Deval Patrick signed a law designed to increase state oversight by requiring that the Division of Banks license all lenders and that first time homebuyers receive loan counseling before they get a subprime mortgage.
“It’s expected that foreclosures are going to increase in 2008 so it’s just a question of what can we do at a state level to minimize that impact. … I think no matter what, the adjustable rate mortgages are going to go up,” said Phil Hailer, spokesman for the state Department of Housing and Community Development.
MetroWest Daily News staff writer Lindsey Parietti can be reached at email@example.com