As the nation grapples with a foreclosure crisis, Island bank and real estate professionals agree the wave of foreclosures is less severe on Martha’s Vineyard than other places in Massachusetts, and other places across the nation. But the Island is not immune.
The number of foreclosures in Dukes County spiked in 2009 and 2010, with the vast majority of distressed loans held by off-Island banks. But the ripple effect of a struggling economy has reached local banks and the real estate market directly.
According to Massachusetts land records, there were 29 foreclosure deeds filed in Dukes County in 2009, and 32 in 2010. A foreclosure deed is the final step in a long trail of foreclosure filings and notices, usually recorded after a bank takes possession of a property. By contrast, in 2006, three foreclosure deeds were filed on the Island.
The foreclosure deeds measure only those properties that went through the entire foreclosure process. The number of property owners losing their homes, though difficult to quantify, is certainly higher. Legal filings do not measure “short” sales and other private transactions forced by the threat of foreclosure.
The land records indicate there are more foreclosures in the pipeline. The first step in the legal process is called an “order of notice.” It is a public declaration that the lender intends to foreclose. It can take from six months to a year, sometimes much longer, for the process to play out.
In 2009, a total of 79 orders of notice were recorded with the Dukes County registry of deeds. Many of those properties are now going through the foreclosure process. In 2010, there were 92 orders of notice recorded.
Foreclosure deeds are clustered mostly in the down-Island towns over the past five years. (Map locations may be approximate).
A spike in foreclosures has a ripple effect far beyond the distressed properties and the families who live in them.
Of the 60 foreclosures on the Island in 2009 and 2010, local banks held the mortgages on only three of them. Local lenders say they kept their exposure low, by sticking to sound lending principles and knowing their customers.
Bradford Egan is the executive vice-president of the Martha’s Vineyard Savings Bank. He oversees commercial, consumer, and residential loans.
“Off-Island banks came in and offered some of these sub-prime loans,” Mr. Egan said. “No income verification, option-adjustable rate mortgages; we never did any of that. We stuck to our fundamentals.”
While the sub-prime lenders competed with local banks for several years, their demise has boosted the business of local lenders.
“I lent more in 2008 and 2009 than I did in 2006 and 2007,” Mr. Egan said. “Part of that is that these other lenders have left the market.”
Local banks, however, had to gear up to deal with the effects of a struggling economy. The Martha’s Vineyard Savings Bank hired extra staff to handle loan modifications and work with customers falling behind.
“It’s tied largely to employment,” Mr. Egan said. “It has been a challenging winter. The longer the time goes, the more people use up reserves. A lot of people held on through personal savings or assistance from families.”
Mr. Egan said he is proud of the bank’s work in helping customers hold on to their homes. But when that is not possible, it takes a toll.
“It’s the worst part of the job, absolutely the worst part of the job,” Mr. Egan said. “In a community like this, it may not be your next door neighbor, but you’re connected in some way.”
When a large number of foreclosures hit the market, it affects real estate in several ways.
Lisa Stewart owns Lighthouse Properties, a real estate agency in Oak Bluffs.
“It definitely depresses prices,” Ms. Stewart said. “You really can’t expect to have a recovery until the bottom of the market gets absorbed. Until that gets fleshed out, that’s going to keep everything down. It’s going to keep prices down, it’s going to keep comparables down.”
Ms. Stewart said she is often frustrated when trying to broker a short sale. In a short sale, the bank agrees to a sale for less than the amount of the mortgage balance owed by the seller, and keeps proceeds from the sale. Ms. Stewart says the banks would often take smaller losses through a short sale, than they would if they carry the foreclosure process to the end, then sell the property. But she finds off-Island lenders require a mountain of paperwork, and are still reluctant to sign off on a short sale.
“We had a case recently where the buyers walked away because they were so frustrated,” Ms. Stewart said. “The whole problem started with the banks, and the banks really aren’t doing their share. We can’t seem to get things together because of the bureaucracy.
“These banks end up not wanting to negotiate with a ready, willing, and able buyer, then foreclose, and many months later wind up making less on the property.”
Save the wave
Among the first actions of President Barack Obama’s administration was to implement a number of government-sponsored programs to help families facing foreclosure.
The Obama administration called its flagship program the Home Affordable Modification Program (HAMP). The guidelines were designed to help individual homeowners, and safeguards were implemented to prevent real estate speculators from taking advantage of the program.
When the U.S. Department of the Treasury launched HAMP, administrators predicted it would help 3 to 4 million homeowners facing foreclosure by streamlining the process of modifying their loans to make payments more affordable.
As of December 31, 2010, Treasury officials say 521,630 loans were permanently modified, a fraction of people eligible for the program. Massachusetts homeowners in the program numbered 13,029. According to RealtyTrac, an online marketplace that tracks foreclosures, 2,871,891 property owners nationwide received some kind of foreclosure filing in 2010, notice of either a default, a scheduled auction, or a bank repossession.
The Warren Group, which tracks foreclosures in New England, counted 12,233 foreclosure deeds filed in Massachusetts last year.
Neil Barofsky is the special inspector general appointed to audit and investigate the federal government’s massive economic bailout initiative.
In his most recent quarterly report to Congress, the special inspector general said HAMP has fallen dramatically short of any meaningful standard of success.
The report cites problems including loss of borrower’s paperwork, blatant failure to follow program standards, and unnecessary delays. The report said those delays sometimes hurt homeowners but benefit loan servicers.
“They too often have financial interests that don’t align with those of either borrowers or investors,” the report said.
That is the crux of the problem with HAMP, according to consumer advocates. Many loan-servicing companies can collect their fees even after the borrowers stop paying. The servicer gets the fees from proceeds of the sale of the home. Often they collect additional fees for insurance, appraisals, and legal costs in a foreclosure. The longer the process drags out, the more fees they collect, and they may earn more money from a foreclosure than they do for a loan modification.