Foreclosure crisis hits close to home

When it comes to foreclosures – just as with the real estate market in general – the Inland Northwest has a split personality. On the Spokane side of the border, foreclosures are rising sharply but the problem remains modest, at least compared with the horror stories in other parts of the country. The rate of foreclosures is well below the national rate, and nowhere near the highs seen here in the early part of this decade – at least not yet. On the Coeur d’Alene side, it’s a different story. Last year was a record year for foreclosures in Kootenai County, and the total number of homes lost to the process eclipsed the figure in more populous Spokane County. MGIC, a major insurer of mortgages, recently put the Coeur d’Alene area on its list of “restricted markets,” placing tighter requirements on any loans it insures there. “It’s clear to me that the foreclosure problem is much more pronounced in Kootenai County than it is in Spokane County,” said Randy Barcus, Avista Corp.’s chief economist. A lot of the difference boils down to this: Kootenai County had a bigger boom over the past decade, in both employment and home prices, and so it had further to fall when the economy soured. For instance, though both counties have jobless rates of just more than 7 percent, the Coeur d’Alene area has had more overall “job contraction,” according to a new report by the Arizona State University’s school of business, Barcus said. The report shows that employment shrank by 4.1 percent in Kootenai County last year, and by 2.3 percent in Spokane County. “They lost a lot more construction jobs” than Spokane County, Barcus said. “Why? Because they had a lot more construction activity” before the recession. Nationwide, the picture has been bleak. About a fifth of all real estate transactions in 2008 were foreclosures, and about 40 percent of all homes sold in the past five years have negative equity – with homeowners owing more than their home’s value, according to Zillow.com. President Obama announced a $75 billion plan last week to help homeowners refinance their homes at lower rates, in an effort to keep more people in their homes. Set against that backdrop, things in Spokane remain relatively healthy. “I don’t think we’re seeing the desperation here yet that other places are,” said Michael Mullin, a Spokane mortgage broker who also has a lot of clients in California. “What we’re seeing here is what I would call ‘normal’ foreclosures.” Worst to come? Spokane County posted 560 foreclosures last year, a jump of 84 percent over 2007. Still, the numbers remain well below those seen in 2000, 2001 and 2002, when foreclosures topped 1,000 each year. It’s devastating for the families who are losing their homes, and it is a growing problem. If January’s filings are any indication, foreclosures in 2009 will outpace last year. But you don’t have to look far to find a city where things are worse, Barcus notes. In the Boise area – frequently included on lists of the country’s most “livable” cities – a quarter of all the homes in the market are in foreclosure or were sold for less than the seller owed. It was recently listed in Forbes as one of the 25 worst real estate markets in the country. “Spokane has typically suffered, in the last five, 10 years, from Boise envy,” Barcus said. “We can get over that now.” During the real estate boom, Spokane’s home values never exploded the way they did in Kootenai County, or in markets in California or Florida. In those places, when values crashed, homeowners found themselves owing tens of thousands of dollars more than their homes were worth. Mullin said he talked to a client in Sacramento recently who owes $200,000 more than his home’s value – and is considering just walking away. Homeowners in Spokane who are “under water” aren’t in such a deep hole, and are less likely to let the home go into foreclosure, Mullin said. “If you’re only $10,000 or $15,000 in the hole, I’m betting you’re finding a way to make those payments,” he said. The problem appears to be deepening right now. January saw 53 foreclosures in Spokane County, compared with 37 last January. And Barcus said that the employment picture in the county – which is closely tied to foreclosures – may be weakening. “Job losses really drive foreclosures,” he said. “Are we heading into a period of weak job activity? I think probably yes.” ‘Financing tennis shoes’ Ray Rieckers, director of housing services for the Spokane Neighborhood Action Programs, said his office is swamped with calls from people who are behind on their mortgage payments and trying to save their homes. SNAP operates federally funded counseling services and intervenes with lenders to try to keep people in their homes. Early last year, Rieckers said, his office might have received 30 calls a month from people fearing foreclosure. “Now it’s 110, 120 new calls a month,” he said. Rieckers agrees that Spokane’s market hasn’t taken the huge hits seen elsewhere. But the same factors that drove the housing and credit booms in the early 2000s were at work here, he said, from “horrendous sub-prime deals” to repayment plans that were so lenient that buyers weren’t even keeping up with interest payments. He recalls dealing with clients who were building up huge credit card debt for routine expenses – and then paying off the cards by taking a line of credit against their homes. “So, essentially they were financing their tennis shoes and their nights out for 30 years, which doesn’t make a lot of sense,” Rieckers said. Now that the credit crisis has come home to roost, those people are suffering, and the recession is compounding it, he said. A lot of for-profit companies have sprung up, offering to help people avoid foreclosure – for a price. Rieckers said he’d be wary of such firms, and he emphasized that there are HUD-funding counseling services, such as SNAP’s, and nonprofit organizations that will counsel homeowners and negotiate with lenders on their behalf. In Kootenai County, foreclosure actions in 2008 totaled 939 – well above the 560 in Spokane County. The Idaho figures are different from Washington’s, as they include some actions that aren’t completed. Still, the difference is stark given that Kootenai County has about a third the population of Spokane County. A key reason for the gap, observers say, is that Kootenai had a bigger boom, and farther to fall. Home values rose for years in Kootenai County – they took a 46 percent jump in taxable value in 2006. But values began dropping last year, and people who bought at the end of that cycle may now find themselves deep in debt and losing value. Jobs also were expanding robustly for several years. said Barcus, citing the ASU report, which said Kootenai County employment was growing by 5 percent to 7 percent for several years, before contracting by more than 4 percent last year. “That’s a pretty darn big swing,” he said. Shawn Vestal can be reached at (509) 459-5431 or shawnv@spokesman.com.