Local Home Foreclosures on the Rise
'People From All Walks' Having Trouble Paying Mortgages

By Dina ElBoghdady and Renae Merle
Washington Post Staff Writers
Monday, December 10, 2007

Caprise Coppedge, a housing counselor in Prince George's County, used to work with maybe one person a week who was struggling to make a mortgage payment.

Now, she sees at least three of them a day and turns many more away.

"There's been a shockingly sharp increase of people in need of help in the past six months," said Coppedge, who works at United Communities Against Poverty in Capitol Heights. "It's unreal."

The Washington region, once considered immune to the unfolding mortgage crisis, has experienced a surge of loans gone bad in recent months. It's an alarming sign that even an economy with plenty of well-paid government contracting jobs could not avoid the credit crunch that's plagued more-troubled regions of the country.

Rapidly deteriorating conditions in the area and beyond prompted the Bush administration to propose a plan last week to temporarily freeze interest rates for some at-risk borrowers, an approach skeptics say will not help nearly enough people to make a difference to the economy or, on a smaller scale, to the most troubled areas.

Locally, those areas include Prince George's County neighborhoods popular with first-time home buyers and outlying Northern Virginia suburbs with hundreds of newly built homes that attracted speculators. There were 79 foreclosures for every 10,000 Washington area households in the third quarter, not including renters -- up from 11 a year ago, according to George Mason University's Center for Regional Analysis.

Coppedge saw it coming in slow motion. Around this time last year, she was mostly dealing with renters who were behind on payments. Rarely did she counsel at-risk homeowners. When she did, they were usually suffering a one-time setback such as job loss.

"Then in midsummer, we felt the tide turning," Coppedge said. "People started trickling in. First they came in to express concern about their loans and gathered information. Then by September, everything picked up speed and suddenly people were telling us they were behind on their mortgages."

Many of those people had taken out adjustable-rate loans. Some used them to buy homes they otherwise could not afford when prices soared in 2005 and 2006. Others were constantly refinancing to pull cash out of their homes.

These loans were usually subprime mortgages, typically made to people with blemished credit. But they were in no way limited to low-income borrowers, said Coppedge, whose recent clients typically earn $60,000 to $110,000 a year.

"People from all walks are getting hit by this," Coppedge said.

Leonid Frolov may soon join their ranks. Frolov, a translator for a commercial satellite company, used what is called a piggyback mortgage to buy his first home, a small D.C. condominium, three years ago.

That means he took out two loans. The first was at a fixed rate. He later refinanced it into an adjustable loan so he could pull cash out to buy a car and pay off credit cards. The second was a smaller loan to help cover the remaining cost of the house. He now pays $2,439 a month.

Frolov felt confident he could refinance the larger loan again before it adjusted in March. But the value has fallen and he owes more than it's worth, so he can't refinance.

"I can't afford to pay even a little bit more each month," said Frolov, 50. "I'm already at my limit. I've lived frugally and the mortgage was my first priority, but my salary cannot keep up with this. No way."

So Frolov is elated that his lender, Washington Mutual, is one of the financial institutions that has agreed to refinance some borrowers and freeze rates for others. Frolov figures he would benefit from either approach, but he does not know whether he qualifies.

Marian Siegel, executive director of Housing Counseling Services in the District, said she is skeptical about whether these lenders will come through for the people who qualify. But even if they do, the help probably won't come easy.

As lenders were crafting the final details of the Bush plan, Siegel said she was working with one of them on behalf of a client who was about to lose her home.

The lender agreed not to take back the home if the client paid $8,000 up front, which she did. But for two weeks leading up to the scheduled foreclosure, "we got the you'll-hear-from-us-soon mantra," Siegel said. The client was still wringing her hands the afternoon before her house was to be auctioned, when the lender finally called off the foreclosure.

Siegel suspects the lender waited until the last minute in hopes of sweating more cash out of her client. "There are psychological games being played," Siegel said. "And I'm not sure that when the loan resets again that borrower won't be in the same position."

It's probably of little consolation to that client that the foreclosure rates in the District, where she lives, were the lowest in the region. As of Nov. 30, only 22 out of every 10,000 owner-occupied D.C. homes were in foreclosure, according to the George Mason center.

At the opposite end of the spectrum are Prince William and Loudoun counties, where 262 and 219 out of every 10,000 households, respectively, were in foreclosure, said John McClain, the center's deputy director.

"In those counties, there were plenty of people engaged in speculative activity in addition to all the folks who were overextending to buy a house," McClain said. "There were so many new housing units for sale in that area that people were buying and flipping, buying and flipping."

Until they no longer could.

"It wasn't big companies, but regular people who took a gamble and lost," said Margie Leon, a housing counselor at the Virginia Cooperative Extension in Prince William County. "It's people who were comfortable and had equity in their homes. They saw all these big-name builders expanding all over the county, and it gave the impression that it was okay, that it was safe, to invest in real estate."

Many invested in second homes. They typically did that by refinancing their existing home with an adjustable-rate loan, Coppedge said. Then they would take equity out of that house to buy a newer one. The first home would then be rented or flipped. But now that the market has slowed and prices have dropped, these investors are left holding two properties.

Oscar Reyes, 29, did exactly that and ended up losing both his homes. Reyes said he owned a townhouse in Manassas and had no plan to move, until his real estate agent and good friend coaxed him into looking at a larger house in a nicer neighborhood in Dumfries.

Reyes doubted he would qualify to buy that house on his $3,000 a month salary. But the deal went through. He said that only later, when he got walloped by a rate increase, did he realize he had taken out an adjustable loan to refinance the townhouse and another one for the new house. Before he knew it, he had more than $6,000 in monthly mortgage payments and he could not sell, or even rent, the townhouse as planned.

Reyes now lives in an apartment in Fairfax County with his wife and baby.

"I speak a little bit of English, but not 100 percent," Reyes said. "So I believed my friend when he said my loan was fixed and everything was okay. My mistake is I believe people more than papers."

The Bush plan would not aid anyone who is in foreclosure or anyone who is more than 30 days late on mortgage payments.

Coppedge, the Prince George's County counselor, said nearly half her clients fall into the latter category.

The pity of it is, she said, that many of those borrowers called their lenders before they got into trouble to try to work out a deal.

"But the usual response was: 'Come back to us after you've missed one or two payments,' " Coppedge said. "Now that they have, it's become much harder for them to get help."