Jean Withers, the northwest regional director of ACORN Housing, discusses the current mortgage crisis in the country on Nov. 19. Withers calls the crisis the perfect storm, because of poor lending practices and consumers with less- than-perfect credit eager to borrow. - World Photo by Madeline Steege

For Jean Withers, the current foreclosure crisis is like a hurricane.

“It’s the perfect storm,” she said.

Withers is the northwest regional director for ACORN Housing, a Chicago-based nonprofit organization that provides housing counseling for low-and-middle income homebuyers. The organization has offices in Portland and Seattle.

Withers was in North Bend recently to talk with the Bay Area Rotary Club about the ongoing crisis and its potential national impact.  

And while there may be no cause for alarm yet, Coos County is beginning to see the first waves from the storm.  

Causes

Withers said there were a number of factors that led to the mortgage meltdown including people with less-than-perfect credit eager to own a home and what she called “obscene” subprime lending practices.

People with poor or bad credit signed into subprime loans, which generally have stricter interest rates and terms than loans for buyers with good credit. Subprime lenders often prey on people desperate to have a piece of the American dream, Withers said.

There is the option adjustable rate loan, or ARM, which allows a customer to choose the terms of the mortgage, including whether to initially pay interest only or minimum payments. Withers said the problem with this type of loans is the payments go up after a few years, often to crippling levels.  To provide loans to people with less-than-stellar credit, companies spread the risk among a number of investors, package them, and sell them much like stocks and bonds.

She quoted an economist who likened the loans to a neutron bomb.

“(He said) it’s the kind of loan that kills the people and leaves the house standing,” she said.

One foreclosure can have an impact on a community and the country, she explained. For example, when one house is foreclosed in a neighborhood, it generally lowers the value of homes around it.  

“Unless we start to deal with it ... we are going to start to watch some of our communities die away or start to struggle,” she said.

Locally

In Las Vegas and Indianapolis, two cities leading the number of foreclosures in the country, some people are abandoning their homes, Withers said. The number of delinquencies in the U.S. is the highest since 1986, according to recent data from the Mortgage Bankers Association.

“People are literally walking away from their homes,” she said.

The ripple effects are beginning to show up in the Bay Area. In early December, banking giant Washington Mutual closed its Coos Bay home loan center as part of a mutlimillion-dollar plan to restructure its mortgage business (see sidebar).

The Coos County Assessor’s Office tracks the number of foreclosures in the county. There has been a definite spike in foreclosures in the last year, said Tamara Houghton, a sales data analyst at the Assessor’s Office. In 2005, the office recorded 30 foreclosures. The number dropped to 23 in 2006. But in 2007, the number more than doubled to 47. The data includes standard foreclosures and deeds in lieu of foreclosure, she said.

Houghton said a majority of the foreclosures in the last year stem from homeowners with ARM loans.

“It’s greater than 50 percent,” she said.

Coos County does not link foreclosure information from title companies, which is common in larger counties in Oregon, said Noel Hackworth, a title assistant at First American Title in Coos Bay.  And title companies don’t have the means to keep track of foreclosure recordings.

“Title companies don’t have the time or resources to do that,” she said.

With the downturn in the housing market, there’s been an increase in so-called short sales, said Danielle Mitchell, an escrow agent at Fidelity National Title Insurance Company in Coos Bay. A short sale allows a homeowner to sell his house for less than the amount owed on the loan. Mitchell said she’s seen an increase in those type of sales in the last year.

And the worst might not be over.

Nationally, the housing slump is not expected to turn around until the spring of 2009, Michell said, quoting data from an analyst from Fidelity National Financial, the parent company of Fidelity Title.

Getting help

Debbie Pickering is the executive director of the Consumer Credit Counseling Service of Coos-Curry, Inc. She said she hasn’t seen an increase in people coming in for debt counseling in the wake of the foreclosure disaster.

But that doesn’t mean there’s isn’t a problem here.

Homeowners could simply be avoiding the problem or procrastinating, she said. People in this county are a little more independent than other areas, Pickering explained.  

“Our community is different than other areas,” she said. “People here tend to wait.”

That’s a big mistake.

The first thing homeowners should do when they realize they can’t pay their mortgage is immediately contact the lender or loan servicer, she said. The bottom line is the mortgage should come before any other payments, including credit cards, she added.

“Housing should be your number-one priority,” she said.

Pickering said while there are predatory lenders interested only in making a buck, consumers who overstretched to get into a house share in the blame. She recommended would-be homeowners get a pre-qualification to see how much they can afford and only look at houses in that price range.

“They should find out where reality is for them,” she said.

When homeowners realize they can’t make a mortgage payment, some tend to avoid the problem instead of talking to the mortgage company, Withers said.

“Often folks wait and wait and wait and they can’t make (payments) up,” she said.  “It’s a huge ball of debt that people can’t escape from.”

If a homeowner realizes he can’t pay his mortgage, he should try to sell the property, Pickering said.

“Get that house on the market immediately,” she said.

But the most important step is to stop avoiding the mortgage company and face the problem head-on, Withers said. In addition to pre-buying counseling, ACORN offers a delinquency counseling service for homeowners who are behind in payments.  The organization also offers ways to get refinanced into better loans before the homeowners are hit with an adjusting mortgage they can’t pay, she said.

“If folks can get on top of this now, they may be able to make a difference in their lives,” she said.