This article first appeared in the St. Louis Beacon: Over the coming weeks, the Beacon, in partnership with KETC Channel 9, will be reporting on the sticky web of issues surrounding foreclosure - a crisis for nearly 2 million Americans, including thousands in the St. Louis region who have lost their stake in the American Dream.
We have been talking to homeowners, housing counselors and economic and financial experts who are helping us explain the situation in understandable terms and sharing solid suggestions about what can - and should - be done.
For economy-weary Americans, the sobering news is that the crisis is gaining momentum. Social agencies and local governments are bracing for a new wave of foreclosures -- tied to resetting mortgage interest rates -- that will hit later this year and into 2009.
Just a few weeks ago, the topic shot back into the public forum, thanks to an aging but beloved Hollywood star who has fallen on hard times.
There was Ed McMahon, for gosh sakes, on national TV spilling out his troubles to Larry King -- and shining a spotlight, he said, on "the million people who now have foreclosure signs on their homes, or nearby."
"There's a lot of people that are hard workers, did everything right, didn't do anything wrong, and all of a sudden, they're in this boat. And I speak for all of them, as far as I'm concerned," said the 85-year-old McMahon, with his wife Pam at his side.
Overnight, an old story was reborn.
And unlike the occasional profile of a newly homeless family forced to live in a car or ironic tales of former donors now collecting handouts from charities, this was about a celebrity that America knows. Generations of a certain age watched McMahon on TV nightly, the affable sidekick on Johnny Carson's "Tonight Show" who pitched products like Budweiser and the American Family Publishers sweepstakes -- the happy guy knocking on people's doors with balloons and an oversized check for $1 million.
Wow. If foreclosure can happen to a successful American like McMahon, what about the rest of us?
The fact is, the foreclosure crisis is striking daily in neighborhoods across the nation, and the numbers are staggering, even graver than the 1 million figure cited by McMahon.
According to a study released in April by the Pew Charitable Trusts, 1.6 million home mortgage loans were either seriously delinquent or in foreclosure as of December 2007. Pew's analysis estimates that 1 in 33 current homeowners will face foreclosure in the next two years as a result of risky sub-prime loans made in 2005 and 2006.
Predictions for St. Louis city and county put foreclosures at 8,000 this year -- an increase from 7,000 in 2007, according to the St. Louis Alliance for Homeownership Preservation.
Just how bad is it?
Mortgage-foreclosure rates have probably not been this high in the United States since the Great Depression in the early 1930s, according to William Emmons, an economist at the Federal Reserve Bank of St. Louis.
What about me?
So, here is the question: What does a guy like McMahon possibly have in common with all of these people who are losing their homes?
On one level, not much. On another level, more than you might think.
"Well, if you spend more money than you make, you know what happens. And it can happen,'' McMahon told Larry King. "You know, a couple of divorces thrown in, a few things like that. And, you know, things happen. You want everything to be perfect, but that combination of the economy, I have a little injury, I have a situation. And it all came together."
People can be overextended financially at any income level, points out Chris Krehmeyer, president and CEO of Beyond Housing, a nonprofit agency that is one of five local nonprofits pooling their staffs to offer counseling for troubled homeowners through the St. Louis Alliance for Homeownership Preservation.
Counselors such as Krehmeyer point out that in today's credit-driven economy, it is not unusual for Americans to be thousands of dollars in debt. A family illness, unemployment, divorce -- any of a number of "situations'' as McMahon referred to them -- could traditionally push a maxed-out homeowner over the brink.
But the explosion of foreclosures goes far beyond such individual problems and has been linked instead to the meteoric rise of new loan products that appeared after 2000.
These mortgages were labeled as "sub-prime" because of their risk. They were made to borrowers with less-than-stellar credit histories, or the loans featured "creative" financing structures that even credit-healthy borrowers could not afford. The culprits most often fingered: adjustable rate mortgages, balloon mortgages, no-interest mortgages.
To make matters worse, the escape hatch for troubled borrowers -- selling their homes at prices higher than they paid -- has been sealed shut by declining housing prices, forcing homeowners to either sell at a loss, or simply hand the keys back to their lenders and walk away.
In St. Louis County, the average foreclosed house was built in 1954, has 1,260 square feet, is appraised at $116,000 and located in a moderate-income neighborhood, according to the county planning department. Such homes are, granted, a far cry from McMahon's 7,000-square-foot, six-bedroom, five-bathroom, Mediterranean-style mansion with the famous Beverly Hills Zip Code -- 90210 -- and $6.5 million asking price. McMahon was more than $600,000 behind on his mortgage, defaulting on a $4.8 million loan from Countrywide Financial Corporation.
McMahon put his posh estate up for sale two years ago, but he, too, found no buyers.
What's to be done?
"Fight for your home.''
That is the message that Krehmeyer and the St. Louis homeownership alliance has for people who are struggling financially and worried about foreclosure.
Be proactive. Contact your lender before you fall so far behind in your payments that nothing can be done. Seek help from a HUD-approved housing counselor who can help renegotiate the terms of your loan with your lender -- and be wary of scam artists.
Karen Wallensak, who directs the Catholic Charities Housing Resource Center in St. Louis, said her agency is fielding 150 calls a day from people with questions or who need assistance with their mortgages. Sometimes, little can be done because they simply waited too long to ask for help, or they simply cannot afford their homes. On the other hand, the agency's 10 housing counselors have their share of successes. They are adept at negotiating resolutions with lenders, a complex and time-consuming process that many homeowners aren't equipped to handle.
For counselors such as Wallensak, the foreclosure crisis came as no surprise.
"Since 2006, we have been warning that this whole thing was going to fall apart. The signs were there. It was evident that we were headed for a catastrophe, but no one was listening. There was money to be made,'' she said.
And unlike a natural disaster, when the trouble started it wasn't easy to see.
"It's not like a hurricane,'' Krehmeyer said. "It's a quiet crisis; homes are foreclosed upon one at a time. You wake up one morning, and your neighbor is gone.''
There goes the neighborhood
For people who wonder why they should care about the foreclosure crisis, Mike Duncan, information technology manager for the St. Louis County Planning Department, offers some eye-opening facts about what happens to neighborhoods when bank-owned homes sit vacant:
- Forty percent of foreclosed homes have property maintenance code violations, an average of 2.2 violations per property.
- Lengthy periods of property vacancy translate to lack of upkeep and lawn mowing.
- Homeowners often have to leave in a hurry, dumping their belongings on the curb for the city or county to clean up.
- Vacant properties attract trash dumping.
- Neighbors face declining property values.
Even so, Krehmeyer says, attempts to assist struggling homeowners are sometimes criticized by people who resent the thought of bailing them out. He says it is important not to play the blame game, though there is plenty to go around -- from mortgage brokers and lenders who played fast and loose with the rules to borrowers who didn't think carefully before signing on the bottom line.
"When you come across a car accident, you immediately start pulling people out of the car,'' he said. "You don't stop and ask, 'Were you speeding?' "