Community Bank Holding Its Own As Foreclosures Soar

By John Voket

The number of homes facing foreclosure nationwide jumped 57 percent in January compared to a year ago, and Connecticut is among the top ten states driving that trend as lenders are increasingly forced to take possession of homes they cannot unload at auctions.

Here in Newtown, however, the community’s charter financial institution appears to be bucking the trend. According to John Trentacosta, president and COO of Newtown Savings Bank (NSB), his institution is currently handling just a single foreclosure.

“We’ve got a very clean portfolio,” Mr Trentacosta said. “Of course you always wind up with one here and there, but it is not systemic at all.”

The NSB executive said the inconsequential number of mortgage foreclosures his bank sees traditionally is directly attributed to a style of lending, which is conservative.

“We can say that for a lot of community banks,” Mr Trentacosta said.

Nationwide, some 233,001 homes received at least one notice from lenders last month related to overdue payments, compared with 148,425 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc. Nearly half of the total involved first-time default notices.

On February 26, the company’s website identified 141 homes in Newtown with “pre-foreclosure,” designations, seven properties on “auction” status, and 17 listed as “bank owned.”

The worsening situation comes despite ongoing efforts by lenders to help borrowers manage their payments by modifying loan terms, working out long-term repayment plans, and other actions

“You have more people going into default and a higher percentage of the properties going back to the banks,” said Rick Sharga, RealtyTrac’s vice president of marketing.

The domestic foreclosure rate last month was one filing for every 534 homes, and January’s tally represented an eight percent hike from December. RealtyTrac follows default notices, auction sale notices, and bank repossessions.

Lenders typically consider borrowers delinquent after they fall three months behind on mortgage payments.

Repos Vs Auctions

Perhaps the most dramatic trend last month was a 90 percent spike in the number of properties that were repossessed by banks, compared to January 2007.

“It suggests that there’s little or no equity in a lot of these homes, because they’re not even being sold to investors at auctions, and it suggests a continuing weakness in a lot of markets in terms of real estate sales,” Mr Sharga said.

During the past year, 30 states saw an increase in the number of homes that had received at least one foreclosure filing. Nevada led the nation, with 6,087 properties receiving at least one filing, up 95 percent from a year earlier, but down 45 percent from December, the firm said.

Rounding out the top ten states with the highest foreclosure rates were California, Florida, Arizona, Colorado, Massachusetts, Georgia, Connecticut, Ohio, and Michigan.

Falling home values and tighter lending standards have extended the housing slump, making it tougher for homeowners unable sell their homes or refinance when they face mortgage payments they cannot afford. And a new wave of adjustable rate mortgage resets expected in May and June threatens to push many other homeowners into default.

The foreclosure news came within hours of reports that sales of existing homes fell to the lowest level in nearly a decade in January, while the median price for a home dropped for the fifth straight month.

The National Association of Realtors said February 25 that sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on records going back to 1999.

The median price of a home sold in January slid to $201,100, a drop of 4.6 percent from a year ago.

The drop in sales and the fifth consecutive decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.

Northeast Sales Plummet

Sales were weak in all parts of the country except the Midwest, where sales posted an increase of 3.4 percent. Sales dropped by 2.1 percent in the West and 0.5 percent in the South, but the biggest loser in January was the Northeast with a whopping 3.6 percent drop in sales.

Sales of both existing homes and new homes tumbled for a second straight year in 2007 as the housing industry was battered by a severe credit crunch that hit in August as major financial institutions began reporting multibillion-dollar losses on their investments in risky subprime mortgages, loans made to homeowners with weak credit.

The market for subprime mortgages has essentially dried up and other types of loans have become harder to obtain as lenders have tightened their standards.

Mr Trentacosta agreed that today’s mortgage underwriting stand are tighter, possibly the tightest he has seen since the late 1980s and early 90s when interest rates were hovering near the 20 percent range.

“Even the popular government programs like Fannie Mae are making it harder for borrowers,” the NSB executive said, adding that perhaps the current situation nationally is an opportunity for local community banks like NSB.

“We don’t do a lot of esoteric type of lending, and many people are coming back to us after dabbling in other riskier types of lending,” Mr Trentacosta said. “Rates are still pretty good, so it’s a good time for those with good credit to obtain a mortgage.”

Anyone armed with a prequalified mortgage is still a force to be reckoned with in this buyer’s market since inventory is continuing to swell, driving prices even lower. But could that trend be expected to turn around soon?

Economic Forecasts Clash

Lawrence Yun, chief economist for the realtors association, said he believed the housing market may be on the verge of bottoming out with a rebound expected to start toward the end of this year.

“Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales,” he said.

He said he expected demand to be bolstered in coming months by congressional action on the economic stimulus bill to raise the caps on the size of loans that can be backed by Fannie Mae (FNM) and Freddie Mac (FRE) and the Federal Housing Administration.

But other economists were not as optimistic, noting that there is a huge overhang of unsold homes, which rose in January to a 10.3 months supply, meaning it would take that long to exhaust existing inventories. That is about double what the inventory level had been during the housing boom.

Analysts said this overabundance of unsold homes would continue to depress sales and prices for some time to come.

“Expect sales and prices to keep falling,” said Ian Shepherdson, chief US economist for High Frequency Economics. “There is no end in sight for the housing disaster.”

The Associated Press contributed to this story.