As foreclosures rise across the country and skyrocket in
economically depressed areas and once-hot housing markets,
more apartment owners are seeing an increase in the number of
rental applicants with blemished mortgage histories. That
includes foreclosures, short sales - when a house is sold for
less than the amount owed on the mortgage - and deed-in-lieu
of foreclosure, when a homeowner gives up a house to the
lender to end the foreclosure process.
One Virginia couple ended up living in a hotel after their
foreclosure, according to Trish Lynch, a trainer and former
credit counselor at ClearPoint Financial Solutions, who worked
with them.
"No one would rent to them. And the hotel is costing
them $3,000 a month to stay there," she said.
Lynch recommended they try to rent from a private owner or
individual who might be more lenient on credit checks, but who
could also ask for higher rents to cover their risk. So
far, the couple's still stuck at the hotel.
Renters who found that their credit was at least good
enough to purchase a home are now returning to the rental market
with serious credit problems. Owners of rental property
still need to be assured that they will be able to collect their
rents; and, one of their tools is a credit check on would-be
tenants. Some landlords may refuse to rent to those with a poor
credit history, others may require extra security deposits.
Renting has become much more risky for the landlord which means
higher rent for those in need of housing... if they can find a
landlord willing to rent to them.
And what about the other category I mentioned? I have
seen several properties that appear to be headed into
foreclosure that the banks just don't want to take back. These
have typically been run-down rental units in desperate need of
repairs. The banks know that they will have a very tough time
trying to sell them and they could wind up with fines from the
city for failing to maintain them. Or worse yet, face a
condemnation order. So, rather than foreclose, or take them
back by deed in lieu, the lender simply releases the mortgage
and writes the loan off. Most of these homes are not worth
much and the debt on each is rather low, but they are often one
of many homes secured by a larger loan.
What effect does this have? The homes are usually already in
a blighted area but since the owner could not afford the
payments, he likely cannot afford the upkeep on the homes
either. This causes a further deterioration of inner-city
neighborhoods which drags down the value of surrounding
properties. This adds further to the problem of people owing
more than their home worth, which has a domino effect on
foreclosures.
So, as bad as the foreclosure outlook is, it is only a part
of the big picture. The tragic problem is worse than the
numbers show. And, I still don't think that we have seen the
bottom yet. Foreclosure filings, and alternatives like
deeds in lieu, will continue to become more grim through the end
of this year. Congress has a "housing rescue plan" that they
expect to implement in October, but how much it will really help
remains to be seen. It may be too little, too late.
Millions of homeowners have already suffered the consequences of
losing their homes and have had their credit score marred -
millions more are teetering on the edge.
Easy access to credit has spurred our economy for the past
couple of decades. With so many people unable to continue to
"borrow and spend," whether on credit cards or a home equity
line of credit, our economy will feel the pinch. Without a
strong economy, the housing market will continue to suffer. We
are beyond a "mortgage bailout," we need an expansive economic
recovery act. I don't mean a $600 tax refund - we need to
rebuild our economy to provide good jobs and security to our
citizens. A housing rescue plan is merely a band-aid.
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