Mississippi is bucking a national trend when it comes to home foreclosures in the third quarter of 2006. The nation on average saw a 43% increase in home foreclosures in the third quarter compared to the same quarter in 2005 and a 17% increase from second quarter. By contrast, Mississippi actually saw a 44% decline in foreclosures in the third quarter compared to 2005.
“It is encouraging,” said Mississippi Banking Commissioner John Allison, Mississippi Department of Banking and Consumer Finance. “Although we had a terrible tragedy on the Coast and a lot of loss of property, citizens continue to make payments down there regardless of the situation. That has stemmed the tide a lot.”
The grants for homeowners who were not inside the FEMA-designated flood plain but received flood damage are also helping Coast residents hold on. Allison said Coast residents want to build back, and they want their credit to be good when they start building again.
Another factor may be legislation originally passed after the Easter Flood of 1979 that waives prepayment penalties and gives residents of disaster areas more protection from foreclosures. If home owners are behind on their mortgage because of a natural disaster, they have a right to challenge foreclosures. Allison said the protections are to help people recover from disasters.
Stable employment levels around the state are another positive for foreclosure rates.
“The job market is relatively stable around Mississippi,” Allison said. “People have income so fortunately they are making their payments. A lot of times a house is an American dream, so people work diligently to make their payments.”
A factor that may be at play with the higher national foreclosures rates is adjustable rate mortgages (ARMs).
When rates go up, people with ARMs have a higher mortgage to pay. If they can’t make enough extra to cover the increase, they could be forced into foreclosure.
“Nationwide it is estimated over $3 trillion in mortgages are going to reprice in the next few months because of triggers in adjustable rate clauses,” Allison said. “When some of these folks got loans originally, they were probably maxed out at the payment they could make. They bought a home hoping their salaries would go up greater than the adjustment in interest rates. Hopefully, with a great majority of repricing, people will be making more money and can absorb the increase in their payments. But there is still some concern out there.”
While a lot of Mississippians do have adjustable rates, Allison said the long-term mortgage rates, 15- and 30-year, are still at levels that are affordable. Although there has been a short -term rise in interest rates, as is normally the case, it takes a while for that to translate to higher long-term rates. Mortgage rates are predicated more on the long-term rates.
“Mortgage rates have remained low,” Allison said. “Thirty-year mortgage rates of 6.25 are still very acceptable and a very good rate. And with the economy moving along, maybe some of the Fed rates will start coming down a little bit.”
There is also the fact that home prices in most parts of Mississippi are more reasonable than in many areas of the country. As an example, Allison said before Hurricane Katrina, Coast condominiums were 30% to 50% cheaper than those in the Panhandle of Florida.
Dr. Ken Cyree, Frank R. Day-Mississippi Bankers Association Chair of Banking at the University of Mississippi, said while people might look at the home prices in Oxford, for example, and think they are high, on average Mississippi homes are a bargain.
“Compared to other states, the housing bubble, if you want to call it that, is much smaller,” Cyree said. “Places like California have much higher property values, which drives up foreclosures. I think the foreclosure problems across the nation are not as bad in Mississippi because we have not had the severe run up in real estate prices like California or Florida. I think the state is in much better shape than in many locales. The good news for Mississippi is that things are improving on the Coast. Things will probably continue to improve as casinos reopen and the housing problems on the Coast are solved.”
According to RealtyTrac, which follows foreclosures nationwide, Colorado, Nevada and Florida posted the highest quarterly foreclosure rates in the third quarter. Colorado posted the highest foreclosure rate in the nation for the second consecutive quarter, reporting one new foreclosure filing for every 127 households — 2.9 times the national average.
Cyree said he doesn’t think overall the interest rate increases have had much impact on Mississippi.
“It hasn’t increased that much,” Cyree said. “They did jump up and now they are back to more traditional levels. If you look at the past year, rates rose in the summer and now the 10-year Treasury Note is back down to about 4.65%. Rates have fallen since July, certainly, back to the level they were about a year ago. There really hasn’t been a prolonged spike in interest rates. Mortgage rates have followed similarly.”
More evidence of stability is the fact that in the second quarter of the year, past due loans at banks in Mississippi were down to an average of 1.7%, which was better than in the previous two years. Cyree said there is usually a strong correlation between past due loans and mortgage foreclosures.
“The trend looks good for banks in Mississippi,” he said.
RealtyTrac officials attribute the nationwide increase in foreclosures to higher interest rates and a general softening of the real estate market.
“What our third quarter research appears to be showing is that the first wave of adjustable rate mortgages is having a negative impact on the number of homes going into foreclosure,” said James J. Saccacio, chief executive officer of RealtyTrac.
An estimated 318,355 properties in the U.S. entered some stage of foreclosure nationwide during the third quarter of 2006.
Contact MBJ contributing writer Becky Gillette at email@example.com.