Inflated Appraisals Add to PA Foreclosures

A recent study found a surge of foreclosures in an area located about 100 miles west of New York City, where 6,100 households, or about one of every five in the county, have started foreclosure procedures.

Throughout the 1990s many of the homeowners who ended up in foreclosure reportedly borrowed on property priced beyond market value.

Moreover, foreclosures were frequently on loans originated by subprime lenders and typically the timeframe from loan origination to foreclosure filing procedures was less than three years.

The Monroe County Task Force, created by the Philadelphia Department of Banking and Monroe County to investigate the problem, commissioned the study, which was conducted by The Reinvestment Fund.

"The Task Force decided to take swift action," said secretary of banking, Bill Schenck, upon the release of the report. "We will offer immediate help to Monroe County families facing foreclosure."

For example, findings show that from 2000 to 2003, 2,745 families were faced with foreclosure filings and an estimated 42% were forced to leave their homes. Since 2000, the number of foreclosures increased by 34%. Since 1995, it has increased 242%.

The study found that "the growth in foreclosure is real, outpaces housing unit growth in the county and is disproportionate to other counties in the commonwealth."

It found that the number of foreclosures in the county nearly tripled from 388 in 1995 to 940 during year 2003. While during 1995-2003, the total number of mortgage foreclosures filed (the study only analyzed initial foreclosure data) was at 6,129.

Another important finding in the study's executive summary is that "loans in foreclosure in Monroe County from 2000 to 2003 have different characteristics than the typical loan in Monroe County." And their commonly shared characteristic is that loans foreclosed between 2000-2003 "more likely involved an inflated sale price than those not in foreclosure, are disproportionately subprime, and went into foreclosure faster than other Pennsylvania counties for which comparable data was available."

Data indicate that Monroe County's population growth was generated by migrations of affluent minorities from New York and New Jersey. Area population growth from 1990 until 2000 was at 45%, and in the three years between 2000 and 2003, there was a population growth of 11%. These mostly African-American and Hispanic migrants, were more likely to be married and have school-age children, earn higher incomes and live in newly constructed housing.

And finally, these foreclosure filings are not evenly distributed within the Monroe County, but "geographically concentrated."

The study also provides guidance on how to repair the situation and the Commonwealth of Pennsylvania's response to the problem in cooperation with the Monroe County Task Force, which among others includes the Department of Housing and Urban Development, the Office of Attorney General, the Pennsylvania Department of Banking and the Pennsylvania Housing Finance Agency.

Besides ongoing state-level investigations and other efforts to help families who are facing foreclosure proceedings, Mr. Schenck said that the state plans to make available the Monroe County Homeowner Helpline (1-800-4PA-0456), that will allow callers to talk to mortgage and legal professionals.

Several mortgage lenders have also offered their assistance agreeing to work with homeowners through the state's "expedited mediation program" or the "enhanced mediation program," which brings in a panel of attorneys and bankers for a more formal mediation process.

According to Mr. Schenck, the state will not limit its efforts to assisting homeowners. "Our second path is to investigate and prosecute those people who have taken advantage of some Monroe County homeowners."

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