Mixed Messages About Maine Mortgage Foreclosures

By Kim Fletcher In early December, Associated Press economic writer Jeannine Aersa reported, "home foreclosures shot up to an all time high in the third quarter," and likewise in a recap of 2007, MaineBiz magazine reports the number of home foreclosures nationwide doubled during the 12 months through September 2007 to 223,538. According to these sources, early figures suggest the fallout hasn't affected Maine as severely as many other states.

But that's not how Wiscasset based Coastal Enterprises, Inc.'s Carla B. Dickstein views the numbers. She cites information from the Center for Responsible Lending, which projects foreclosures using a cohort of loans where the adjustable rate mortgages were made. "They project about 16 percent foreclosures in Maine statewide from these loans and feel it is a conservative projection. Their numbers are based on Moody's [Investors Service] projection, which is a very respectable resource," said Dickstein.

CEI and the Center for Responsible Lending joined on a study of mortgages (www.responsiblelending.org/pdfs/foreclosure-paper-report-2-17.pdf) in Maine from 2000 to 2005. Jim Campen, professor emeritus of economics at the University of Massachusetts Boston, served as external reviewer for report.

For Maine, subprime mortgage loans originated in 1999, Maine has the highest cumulative foreclosure in New England, more than one in five (20.9 percent). Also, Maine subprime loans serviced by the Mortgage Bankers Association between 2003 and 2005 were on average 11.5 times more likely to be in foreclosure than prime loans during that period. In the first quarter of 2005, subprime loans in Maine accounted for 14.7 percent of the total mortgage market and 60.4 percent of all foreclosures.

The report summary finds Maine's law provides fewer protections from predatory lending for fewer borrowers than do laws in many other states. The report arose from concerns that Maine citizens are not receiving the same protections against predatory lending practices that are available in other states.

The report is based on research conducted during July and August 2005, and is an examination of Maine's subprime mortgage market, to determine the extent and impact of predatory lending in the state between 2000 and 2005.

The report found:

" Maine is vulnerable to abusive lending practices, due in part to Maine's high homeownership rate and aging population, combined with declining economies and escalating housing prices. These conditions make the vulnerable to predatory lending practices that strip equity from borrowers and their communities.

" Maine is experiencing significant levels of predatory mortgage lending.

" The consequences of predatory lending include foreclosure and equity stripping.

" Maine's current legal framework lags behind other states and is inadequate to protect Mainers.

The study reports Maine citizens could benefit substantially through legislative action to prevent predatory mortgage lending.

Dickstein also cites an October 2007 federal report on the subprime lending crisis by Majority Staff of the Joint Economic Committee, Senator Charles E. Schumer, chairman and Rep. Carolyn B. Maloney, vice chair, which states the 5500-plus projected Maine foreclosures is about 22 percent of the outstanding subprime loans in the state.

A table in that document, "Impact of Subprime Foreclosures on Home Equity, Property Values and Property Taxes" reveals estimated outstanding subprime loans at 24,460 units, with an average home value of $185,475. The committee estimates a subprime Maine foreclosure rate for the third quarter 2007 to the fourth quarter 2009 at 5,583, (or 22 percent of outstanding subprime Maine loans) with an estimated cumulative loss of property taxes (in 2007 dollars) to be $3,076,978, with a total economic loss in home values, in neighboring property values, and loss in property tax revenues of $299,810,395.

Locally, Damariscotta Bank & Trust President Tom Finn said, "Foreclosure rates are actually slightly below the national average at DB&T. We don't see the subprime issues that are in other states." According to Finn, that's because Maine has a significant number of community-based banks that service communities "in the right way." Essentially, the hometown banker knows a mortgage holder's ability to pay, and when seeking a second mortgage or to re-finance an existing mortgage, Maine hometown banks are more stringent in their lending guidelines.

Similar calls to the corporate offices of The First and Camden National Bank were forwarded to public relations professions and were not returned by press time.

Foreclosures also occur for nonpayment of property taxes. Damariscotta Town Manager Greg Zinser said he's seen nothing significant or different than in years past. "It is pretty much the same group of individuals every year. We lien typically about 80 individuals per year, and get to the actual foreclosure process, that is sending out notifications to about 20 people. Typically they pay their taxes just before the foreclosure deadline."

Similarly, Newcastle Town Administrator Sandra Blake is not seeing a jump. But Blake is seeing a trend, echoed by CEI's Dickstein, that the coming months will prove harder than ever. "I think we are going to be seeing more people that need help," said Blake. "It's early yet."

Dickstein is seeing the "safety-net" agencies are overly taxed, "there's just more need. "The fuel situation is doing it. The amount of need and the fact that people aren't making it with just the basics," she said.

Basics include shelter. In the Responsible Lending/CEI report, the authors write that national trends suggest foreclosure rates in Maine will likely increase in the next few years. The delinquency rate is a good indicator of future foreclosure rates, since it indicates borrower hardship in making monthly mortgage payments, and particularly among borrowers with hybrid adjustable rate mortgages. Foreclosures typically peak when loans are two-to-three years old.

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