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December 4, 2007

Foreclosure crisis hits Essex County

Edward Mason

BOSTON — Every town in the Greater Newburyport area saw the number of foreclosures rise in the first 10 months of 2007 as the home financing crisis rapidly spiraled across the state. The ripple effect is likely to depress already declining home values even more, experts say.

While much of the statewide crisis has been focused on more urban communities, many suburban communities are suffering as well. Amesbury, which had five foreclosures in the first 10 months of 2006, had 27 for the same period in 2007. Salisbury’s foreclosures doubled to 12, and Newburyport’s tripled to nine through the end of October.

Overall, Essex County cities and towns saw foreclosures rise by 282 percent as of Oct. 31, according to The Warren Group, a Boston real-estate-data firm. That does not include Andover, Lawrence, North Andover and Methuen, for which the firm limited data. Statewide, foreclosures increased 201 percent during the same period.

Terence Egan, editor in chief at The Warren Group, said foreclosures are rising because of a dangerous combination of factors. Interest rates on adjustable-rate mortgages are rising at the same time home sales are declining. As people fall behind in their payments, they normally would sell their homes to get out from under the loan. But declining home prices are making that impossible.

“Home values going down has exposed a lot of problems,” Egan said.

Many people got into trouble because they agreed to loans they couldn’t afford. In some cases, those loans were so-called “subprime” loans to people with bad credit. In other cases, people with bad credit or insufficient resources were targeted by predatory lenders, which put them in loans with rapidly increasing interest rates.

Egan said foreclosures in Essex County are surpassing the increase statewide because of its two major urban clusters, where more minorities and low-income people targeted by predatory lenders live. Lawrence, Haverhill and surrounding cities all saw increases in foreclosures, as have Lynn, Peabody and Salem.

Thomas Callahan, executive director of the nonprofit Massachusetts Affordable Housing Alliance, said suburban homeowners could be hurt by falling home prices made worse by the foreclosure crisis.

“There’s a ripple effect foreclosure sales have on overall values in eastern Massachusetts,” Callahan said. “It depresses the market most severely on your block. But when there are so many foreclosures in Essex County, you can get to point that all of those foreclosures on the market have an effect of dampening values going forward.”

The latest foreclosure data come as the Bush administration appears ready to announce a major deal between lenders and the federal government.

U.S. Treasury Secretary Henry Paulson yesterday said the nation’s largest lenders appear ready to freeze mortgage payments at the low, so-called “teaser” interest rates expected to rise next year. An estimated 2 million subprime borrowers are expected to have their interest rates rise in 2008.

Massachusetts lawmakers also have taken steps to put the brakes on the foreclosure crisis.

Earlier this year, the Patrick administration unveiled a $250 million fund that would be used to refinance loans in danger of foreclosure.

Not everyone qualifies. For instance, the loans are limited to people with credit scores greater than 560. However, that fund has not refinanced a single loan since it was launched in July. Thomas Farmer, a Massachusetts Housing Authority spokesman, said there are 30 homeowners being considered for the loans.

And late last month, Gov. Deval Patrick signed a bill — written by Sen. Susan C. Tucker, D-Andover, and Rep. David Torrisi, D-North Andover — to improve state oversight of the lending industry while providing resources for people at risk of losing their home.

The loan requires people to receive financial counseling before agreeing to a subprime mortgage. It also gives homeowners a 90-day window to catch up on their mortgage and halt foreclosure proceedings.

Tucker said the new law is meant to end abusive lending practices but won’t help everyone.

“The intent of our legislation was to put a halt to the whole game that created this crisis,” Tucker said. “The bill is not a rescue plan.”

Indeed, with perhaps thousands of Massachusetts homeowners’ adjustable rate loans set to rise next year, Massachusetts Affordable Housing Alliance’s Callahan said the pressure will be on the state to find a solution.

“We’re going to have to find more creative solutions to have a soft landing for the people in those homes,” Callahan said.



Foreclosures

City/Town%Jan. 1 to Oct. 31, 2006% Jan. 1 to Oct. 31, 2007%Percent change

Amesbury%5%27%440

Georgetown%3%5%67

Groveland%2%7%250

Merrimac%3%7%133

Newbury%0%2%0

Newburyport%3%9%200

Rowley%1%5%400

Salisbury%6%12%100

West Newbury%0%2%0

Essex County%213%813%282

Statewide%2,080%6,258%201



NA: Numbers were not collected by The Warren Group



Source: The Warren Group

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