Reselling makes mystery of local mortgage market

Foreclosure rate drops below record pace

Since the housing market turned south, financial institutions have required property owners to foreclose on 761 parcels in Boone County. So far this year, the foreclosure rate is slightly lower than the record pace in 2008, but mortgage reselling and bundling and other property transfers obscures the tracking process.

Tom Schauwecker, the Boone County assessor, and Greg Harmon, a real estate agent who specializes in tracking foreclosures, said more property is being lost than is reflected in the reports and cautioned that there could be a fourth-quarter spike in foreclosures.

The foreclosure data from January 2007 through September analyzed by the CBT reflects the dynamics of the national housing market but at a much smaller scale because subprime lending in Boone County was relatively low, and the local market was more stable during the boom and bust, real estate experts and bankers said.

“We haven’t seen a dramatic increase in foreclosures,” Teresa Maledy of Commerce Bank said.

Generally, the foreclosures Commerce Bank has seen have been the result of healthcare issues, job loss or possibly divorce.

A document provided by the Boone County Recorder’s Office shows that Boone County had 231 foreclosures in 2007, 307 foreclosures in 2008 and 223 foreclosures in the first nine months of this year. Recorder Betty Johnson said that if the current rate is maintained, there will be 295 foreclosures in 2009, the second highest annual number.

Community banks typically sell loans in the secondary market, and there are only three local or regional banks among the 14 financial institutions with 10 or more foreclosures since January 2007: Boone County National Bank (22), Commerce Bank (13) and Premier Bank (10). The three combined had less than 6 percent of the total. The list was topped by national institutions such as Fannie Mae (63) and Freddie Mac (35), Citibank and its affiliates (16), along with Bank of America (22) and its recently purchased affiliate, Countrywide Financial (23), the country’s largest mortgage lender that nearly went bankrupt because of widespread mortgage defaults and foreclosures.

The institution with the third-highest number of foreclosed property is Deutsche Bank National Trust Company, which has been accused of having a relatively high rate of subprime mortgage foreclosures and evictions and subjected to protests in other states.

Looking behind the numbers

The foreclosure list illustrates how Boone County mortgages became a part of the bundling of mortgage-backed securities that were devalued and helped lead to the market’s demise. Also, the number of brokers offering mortgage services for Boone County property owners multiplied rapidly after 2002.

Among the high-value properties foreclosed on this year were strip malls, batches of residential lots and a renovated building downtown. Glen Strothmann’s property at 904 E. Broadway was foreclosed on in August 2009.

First Community Bank in Clinton, Mo., took possession of the property from Strothmann and Delta Roads Development LLC for $1 million, according to foreclosure documents from the Boone County Recorder’s Office.

Delta Roads signed a deed with First Community Bank on Dec. 21, 2006, and was notified of the impending foreclosure July 23 of this year. Strothmann declined to comment.

An even larger foreclosure this year was the $2.3 million building formerly owned by Gregg Woods that housed his luxury used-car dealership on East Nifong, Woods Auto Gallery. The current owner is Bank of the Internet.

The reselling of mortgages complicated the effort to determine which banks made the original loans for properties that were later foreclosed.

Schauwecker said many mortgages were sold as bundled mortgages, and brokers didn’t look at a borrower’s ability to repay the loan or the collateral.

Also, Schauwecker and Harmon said some property owners facing foreclosure cases used warranty deeds to circumvent the expensive foreclosure process, thus being left out of the foreclosure tally for the county. A warranty deed is a type of deed in which the grantor, or seller, guarantees that he or she holds the title to a piece of property and can sell it to the buyer. The Assessor’s Office doesn’t keep data about which warranty deed filings are actually for foreclosed properties, which makes an accurate count of foreclosures in the county difficult.

Several of the largest property losses in the past two years were transactions that were warranty deeds directly from the developer to Premier Bank’s property holding company, PDIL in lieu of foreclosure.

The reason community banks have seen a lower number of foreclosures than other lending institutions could be attributed to business practices, Maledy said.

“We want to establish and maintain a relationship with the borrower,” Maledy said. “We might have a little different focus than a broker might have.”

The aftermath: banks typically take back properties

Although foreclosures have risen in the past two years, the purchasers have stayed pretty constant: the banks. Realtors rarely see a private resident buying a foreclosed property in trustee sales on the courthouse steps. It’s almost always the banks buying back the foreclosed property.

The banks provide the money used to pay the original owners, above the amount of the down payments. Although the banks hold the notes on the properties, they don’t technically own the properties and must bid on them at trustee auctions to get them back.

“When you go to foreclosure at the courthouse, the bank will bid it in at or above the deed of trust,” Harmon said. That makes the property too expensive for most real estate investors, while the bank’s loss is insured up to a certain point, he added.

Harmon’s theory about how the banks have created their own market of foreclosed properties: People looking for deals in the real estate market are turning to foreclosed properties. The higher demand has caused the banks to adjust their valuations higher, which means banks are getting more money for these properties when they are sold again.

“Those that can afford to hold onto it (foreclosed property) or purchase it at its low value are in the driver’s seat,” Harmon said.

Most banks resell their properties through realtors.

If banks really are creating their own market, Wilkerson said it would come as a surprise to her.

“No bank wants your property,” she said.

Maledy also said that in her work with Commerce Bank, she hasn’t experienced the business practices outlined by Harmon. BCNB and Commerce were the grantees in less than 5 percent of all of the foreclosures in Boone County since January 2007; national financial institutions foreclosed on the vast majority of properties.

Wilkerson said community banks wish they didn’t have to foreclose on homes because it means they have to sell the property at a loss, and banks hope they don’t lose any more money on the property than they already will.