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As mortgage rates rise, so do foreclosure figures(Frederick News-Post, The (Frederick, MD) (KRT) Via Thomson Dialog NewsEdge) Jun. 28--Worried Fredericksburg-area homeowners may start calling Ken Scruggs if the Federal Reserve raises rates today. The manager of Chancellor Mortgage Funding LLC in Fredericksburg said people with adjustable-rate mortgages, or ARMs, are getting anxious to lock in a fixed-interest rate. "We're seeing people coming in now out of fear," he said. "They'd rather refinance now than take a chance that [interest rates] will reach 9 [percent] or 10 percent in a few years." An increase of just a few percentage points can make a huge difference in mortgage payments. A monthly payment of $1,500 on a $500,000 ARM, for example, doubles to $3,000 when interest rates climb from 3 to 6 percent. "There are not a lot of people who can come up with $3,000 a month," Scruggs said. Most Fredericksburg-area residents who have ARMs have been able to cope with the Federal Reserve's steady increases in interest rates because the region's vibrant economy and low unemployment rate help cushion the impact, he and other financial experts say. But some residents are struggling to hold onto their houses. The number of foreclosures in the Fredericksburg region has climbed from 19 in the first quarter of 2005 to 80 during the same time period this year, according to RealtyTrac, a leading online marketplace for foreclosure properties. In foreclosure, a homeowner who cannot make mortgage payments loses the house to the mortgage holder. The property may then be sold. Stafford and Spotsylvania counties, which include Fredericksburg figures in RealtyTrac's report, had the most foreclosures locally. The number jumped from 10 in the first quarter of 2005 to 36 in the first quarter of 2006 in Spotsylvania, and from 3 to 29 during the same time frames in Stafford. Those also are among the fastest growing counties in Virginia and the country, which means that more people have been taking out mortgages on houses, second homes and investment properties, pointed out Mike Fratantoni, senior economist for the Mortgage Bankers Association, a trade group based in Washington. The handful of foreclosures that Ron Davis, president and CEO of Virginia Heartland Bank, has seen, for example, involved people who had bought property with the intent to sell, but got stuck with unanticipated mortgage payments when the real estate boom started to stall. Fratantoni said a more realistic figure to look at isn't the number of foreclosures, but the rate. "In the first quarter of 2006, the foreclosure rate in Virginia was 0.24, which is one-fourth the level of the national rate," he said. "Virginia is one of the stronger labor and housing markets in the entire country." Currently, the state with the highest number of foreclosures is Colorado, followed by Georgia and Texas, according to RealtyTrac. Nationally, the foreclosure rate is down because more people are getting mortgages, Fratantoni said. "Between the fourth quarter of 2005 and the first quarter of 2006, there was an increase of $300 billion in mortgage debt outstanding nationally," he said. "It's a $9 trillion dollar market that's been growing at a double-digit rate." That's small comfort, however, for the people who wind up coming to Deanna Hathaway for advice. She's an attorney for Boleman Law Firm in Richmond, which specializes in bankruptcies and foreclosures. Her clients include people living in the Fredericksburg area. Their financial woes typically stem from such things as the changes to the minimum payments required on credit card bills and the impact of rising interest rates on ARMS, she said. They're able to cope until something unforeseen occurs, such as an illness, divorce or loss of a job. "We see a lot of dual income couples with children. We see single people. It 's everybody. It's our neighbors, our friends, our relatives," she said. "One bump in the road, and it could be any of us going through this." One of the first steps they tend to take is to pay off their debts by tapping into their house's equity or refinancing, Hathaway said. Mortgage lenders have come out with a number of new loans that can make this attractive, such as ARMs that start out at 3 percent and then fluctuate when the Fed changes the prime lending rate. Locally, interest rates on a 5-year ARM are now as high as 6.625 percent, according to figures posted yesterday on fredericksburg.com. Interest rates on subprime and home equity loans can be even higher. "We see some loans that are really high, usually on equity lines," Hathaway said. "It's not unusual for us to say, 'That's too expensive.' That's difficult, telling people their loan is too expensive." In most cases, however, she said she's able to help people hang on to their homes by such things as making a Chapter 13 bankruptcy filing, which stops foreclosure proceedings. "It stops the clock so they can pay back their debts and get caught up," Hathaway said. The smartest move, however, is to talk to someone at the bank or mortgage company before things get that far, Scruggs said. They're interested in keeping loans from going into foreclosure, and may be able to work out a deal. Someone who can't pay their mortgage for three months, for example, might get a grace period and have the payments added to the loan principle. "Anyone considering refinancing should come in with a long-range financial plan rather than in a panic," he warned. "They shouldn't refinance just because they want to buy a pickup. That catches up with you." |