Locals still feel the aftershocks
As the housing downturn hit neighborhoods across the nation, the Rockbridge area was not immune.
In 2008 the number of foreclosures in Rockbridge County quadrupled compared to previous years. Many of those arose from subprime mortgage loans.
Rockbridge County Commissioner of the Revenue David Whitesell said that the county had 18 foreclosures last year. Before last year, he said, the foreclosure rate was steady at about four or five each year.
The Richmond-Times Dispatch reported on Jan. 15 that national foreclosure filings increased 81 percent from 2007 to 2008. In 2008, foreclosures were filed on 2.3 million properties.
Whitesell did not have specific data about each foreclosure in Rockbridge County. But Dennis Hawes, a real estate agent with Home Realty in Buena Vista, estimated that about half of the foreclosed properties he sold last year had had subprime mortgages.
Hawes, who specializes in the sale of foreclosed properties, said that in an average year, he handles about 80 percent of the foreclosed homes sold in Rockbridge County.
“The increase in foreclosures was a result of bad financial decisions across the board,” said Hawes. “These were loans that should have never been made in the first place.”
Subprime mortgages are loans to borrowers who would ordinarily not qualify for a mortgage, including those with the poorest credit ratings and lowest incomes. The loans often include a lower introductory interest rate that could shoot up to very high levels.
When the interest rates spike, subprime borrowers are often unable to make their payments, resulting in a foreclosure.
The lender – typically a bank or a mortgage company – may seize the property and attempt to sell it to cover the cost of the loan.
Though Whitesell refused to speculate on the number of foreclosures expected in 2009, Hawes estimated that this year would see as many foreclosures as 2008.
Some of Hawes’ foreclosed home sales happened because of the owners’ bad financial decisions. Many were foreclosed, he said, because the owner refinanced the home to cover other expenses.
Hawes noted that as a home’s property value increases, owners can refinance the loan based on the home’s added value. He said some homeowners refinanced their home for many times what the home was actually worth.
“[They] use the house as a piggy bank,” he said.
But Hawes said many factors can lead to a foreclosure.
In his 15 years with Home Realty, Hawes said, he had never seen a case where job loss led directly to a foreclosure. But with national unemployment now at a 16-year high of 7.2 percent in December 2008, he said he assumes that unemployment is playing a role in recent foreclosures.
While foreclosure can be a problem for homeowners, it can also affect home buyers. Uncertainty about job security could be preventing home purchases by many potentially qualified buyers, Hawes said.
Fewer buyers can mean more foreclosures, because people are unable to sell homes they can no longer afford.
A local businessperson who asked not to be identified owned a house built in a new subdivision as an investment. But the owner lost the house to foreclosure. When construction started three years ago, the now former owner said there were five prospective buyers, all of whom ultimately fell through.
One potential buyer was unable to get a loan amid the banking crisis, while the rest needed to sell their current homes, which they were unable to do.
Hawes, who is now representing the house, said the owner then rented it for $1,600 a month, while paying a monthly mortgage of $2,400. A year later, the rental market was flooded with unsold homes.
The owner called the bank upon realizing that it was impossible to carry the mortgage and was told the only option was foreclosure.
The house is currently listed at a price well below construction costs, the one-time owner said.
“Someone is going to get a really wonderful house at a very low cost out of this.”