National Bankers Association Says Indiana Leads USA In Mortgage Foreclosures!



National Delinquency Survey Finds .98% of Indiana Loans Faced Foreclosure in 4th Qtr 2005
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In what I consider to be an informative measure of what is coming down the pike, the National Bankers Association found that 7575 Indiana homeowners faced a foreclosure suit in the 4th qtr of 2005. This level is a new record for the state and is double the nation's average. If yourperspective is as a foreclosing lender or investor, this index is a measure of what to expect in the future. Indiana foreclosure suits sometimes take six months to a year to complete.

The Indianapolis Star in it's Saturday March 18, 2006 edition highlighted this information as the main front page headline. In a state that is fighting aggressively to fight the ills of the rust belt, this sad bit of news adds a taste of reality to our usual recent diet of good news. Just last week Toyota announced an expansion of it's Lafayette auto plant expecting to add 1000 jobs over the next year. We can only hope that some of these jobs emphasize the usage of new technologies that have not been common with auto plant jobs. Because somewhere in our manufacturing mentality, a large portion of our population was romanced into grabbing the quick buck and shorting their education for the anticipated long term security of the plant. Now, many of these people find that with no manufacturing jobs, all they are trained for are much lower per hour jobs in the service sector. Blockbuster does not pay like Chrylser!

The Star states that "foreclosures in Indiana are driven by factory layoffs, personal bankruptcies, stagnant home prices, and aggressive lending." I agree with this simple finding and also would point out the the sequence listed points out much of the cause and effect that put us in this position...factory layoffs lead to personal bankruptcy. Personal bankruptcy closes down the credit markets and that stagnates home prices. Finally, our free market system naturally fills these credit needs with aggressive lending practices which may ultimately lead to foreclosure. With aggressive lending programs there is usually no room for a hiccup and once you have lived long enough you know that everybody has hiccups! Divorce by itself hits 50% of all families-and that is one major hiccup and in my experience, often the straw that breaks the struggling homeowners back for financial and emotional purposes. That is a pretty high possible rate of problems! Also, don't forget the stress of inadequate medical coverage and the ease of obtaining credit card debt. In 2005 Indiana had a 13.7% increase in bankruptcies over 2004.

Some good employment news does exist in Indiana. Employment is up 1.3% in the last 12 months. These 40,000 jobs are primarily in construction, transportation, and services. Factory employment continues to shrink and with it goes the large incomes that represent a bygone error of doing business. The US Bureau of Labor statistics reports that in the five years ending 12/31/2005, factory jobs decreased in Indiana 17.6%. That is over 100,000 jobs!

Another measure sited in the article is that 2.75% of mortgage loans in Indiana were past due at year end. The only state in worse shape by that measure is Ohio at a sad 3.22%. Now, we have a new element to add to the fire, increasing interest rates and adjustable rate mortgages that are going to escalate payments to already stretched homeowners. This is not California- a refinance is not going to save the day because the chances are high the home you bought in the last few years is not worth a lot more than the day you purchased it.

I always tell people that I associate with nationally that many of the negative statistics for the state of Indiana are not applicable to the Indianapolis metro area. I think that is still the case but the armor is getting creased. Last week, Hamilton County Indiana (Fishers/Carmel/Noblesville) was identified as the 15th fastest growing county in the USA. But, we are seeing more and more foreclosures in these once secure communities. Why? Despite the building boom growth has brought, it has also added one more damper to housing prices, a very adequate supply of affordable and very reasonably priced housing. With the growth and some ensuing population shifts, appreciation in metropolitan Indianapolis for an average home in the 4th quarter of 2005 was 4.9% compared with 12.9% nationally as reported by the US Office of Federal Housing Enterprise Oversight.

So, where is the solutions I see for this condition? It really depends on your perspective. The shift in employment is not going to cease. Interest rate pressures are now adding another mix to the pie. I think there is an opportunity for earlier loss mitigation. This mitigation can start in the default areas of the lenders, but I also think it can be pursued and managed better in the open market. Be willing to work with a Realtor. Train local representatives as to your policies and then ask your defaulting borrowers to contact your representative. Investors, go out into the market with an eye toward helping...not just focusing on the quick dollar turn. With a cooperating lender, you might be surprized at the win-win situation that can develop. I know, I seem to have one or two loss-mitigation cases going in our office at all times and it has a great deal of promise when all parties agree to not point fingers, but to find a creative real estate solution!

Top Ten States For Foreclosure Actions Taken In 4th Qtr 2005
National Bankers Assn.

1. Indiana
2. Ohio
3. Michigan
4. South Carolina
5. Oklahoma
6. Georgia
6. Kentucky (tie)
8. Tennessee
9. Kansas
10. North Carolina

Mortgage Fraud-It Is Not Just The Big Guys Anymore!

I think way to many people take the ideas of creativity, and forget that in life there is this more important thing called character. Combined with our ongoing assurance that we are invincible (you do still feel that way...right? Or is there some other screwy reason you drive with a cell phone in one hand, changing the radio with the other, while trying to read a map...at 65 mph?) I think the idea that bad things happen to other people is pretty common. But, mix in plain old fraud into your creativity quotient and today, you are taking a huge risk.

The FBI (yes the big federal agency that use to have a TV show) is targeting fraud and specifically property flipping. They are focusing on two types of schemes:

1. Inflated fraudulent appraisal on property sold at inflated price and subsequent default after a few payments.

2. The new exotic version known as the "short sale property flip". The fraudster finds home with a pending foreclosure and an appraiser willing to support a deflated value (oh yeah...said appraiser usually ends up with some cash in this deal...he does not deflate values because he does not know better). With a little work convincing the mortgage lender that they are way over advanced, a sale takes place. Then the fraudster gets the same appraiser to raise the price and they sell it for much higher than the market value.

These are both examples of creativity with no character!!! And now the feds are holding back no punches! If you have ever considered strucuturing a deal with lots of creativity, and no character, maybe you might want to consider how you would like to spend the next 30 years in a federal pententiary! That is no exaggeration as a title company closing attorney in Atlanta learned when she was found guilty on 169 counts of mortgage fraud for a $20MM scheme. Now don't write this off because of the size. That is still about 1.5 years per million. I don't know about you but I don't care to spend one day in one of those joints while ruining my professional and personal reputation.

So, remember...creativty with character!!!

They make it look so easy...all the real estate teachers! You know who I am talking about. Whether it is the late night gurus with the mansions, cars, and multiple girlfriends/boyfriends in their pool attire, or if you are in the business, the teachers who want to share their wisdom...the wisdom gained from selling so many......books, cd's, and seminars. Somewhere in this blog we are going to setup a place to really discuss specific gurus. I have some experience and opinions of a few and they are not all critical. I just have the misfortune of seeing so many people parted from their limited dollars hoping for the miracle pill. And the pill does not materialize, but deeper financial problems do. When so much of their time and energy could go toward focusing on two very important concepts:

1. Solving somebody's needs
2. Doing it creatively!

My company's motto is "Creative Real Estate Solutions" and while this blog is not about my company, what I hope is that it can become a resource for everyone who wants to solve real estate problems creatively. I think you will find this blog interesting and possible beneficial if you are an investor, real estate agent, property owner, corporate asset manager, property manager, or just fascinated about real estate and wanting to learn more. Creativity will only rear its head with lots of participation. I am going to find as many ways as I can to get as many different participants as possible. The train may take a little while to get out of the station, but it will and when it does...watch out! Creativity knows no limits in this blog! Creativity is synonomous with brain-storming in my way of thinking. With brain-storming, some neat solutions are suggested. Not all of them work...today! But they might. If not for me, maybe for you. And so it goes. I look forward to our brain-storming together!