Empty homes on Main St, USA, tell frontline tale of bank squeeze

AS TRAUMATIC as the personal anguish they represent, there is nothing unique about five empty properties on South 17th Street in Springfield, Illinois.

In the past month these homes, out of fewer than 100 on the street, have been repossessed after their owners could not afford to fulfil mortgage repayments — two have already been levelled.

They join 260 other Springfield addresses on sale because mortgage lenders wielded their axe — 16 more properties were added to the list this week.

Around the city, similar in size to Limerick, another 513 houses are at the pre-foreclosure stage, in these cases banks have served notice and owners are hoping for a last-minute reprieve.

Figures from Sangamon County sheriff’s office in Springfield revealed in the first six months it handled 172 repossession orders for the city. This compared with 126 repossessions granted through the Irish High Court system in the same period.

There is however a different debt culture in America. Yesterday it emerged 303,879 homeowners were in possession of a foreclosure notice in August, this accounts for one in every 416 households. It represents a 27% increase in 12 months and a record for the country, despite hopes the housing market was recovering.

In the state of Illinois, which has 12 million residents, there are 17,374 foreclosed properties on sale.

And this in a week when America saw its two mortgage giants, Fannie Mac and Freddie Mac, collapse into the Government’s arms carrying the weight of $5 trillion (€3.54tn) dollars worth of home loans they had guaranteed.

Yet in the midst of unprecedented bailouts within financial markets, Springfield is by no means the most economically depressed city in the country.

It is an otherwise stable community treading water during a wider property market meltdown.

Every Tuesday at 9am director of support services Mike Walton conducts the foreclosure sales on behalf of the Sangamon county sheriff’s office.

He said it is mostly carried out in a room with just a handful of lawyers representing the banks, the owners absent and long since resigned to losing their homes.

It is a routine final act in a process that started out when predominantly single families took out mortgages from community banks based in the Illinois region and ultimately failed to meet their repayments.

Mr Walton said, bar an occasional visit by curious citizens, the weekly gathering consists of straightforward sales of properties already abandoned at prices hopefully sufficient to meet the banks’ expenses.

“In 99% of cases we do not have to go around and evict people, they already know what is coming by the time it gets to us. We really do not want to be physically evicting people unless we have to.

“It is pretty much a done deal anyway, the mortgage companies are good at working with these people to come to some arrangement for moving out.

“Of those we do have to evict we find it just hasn’t sunk in until we arrive at the door, and then they are looking for more time. But that is rare,” he said.

The properties coming up during sheriff’s sales range in price from a few thousand dollars to more than a million in the case of failed enterprises.

However since the sheriff’s office took responsibility for these sales the amount of houses sold in this fashion has remained steady. In 2006 the figure was 372 and in 2007 it stood at 364.

Mr Walton feels this has a lot to do with a change of ethos among lending institutions.

“I think the banks are trying fairly hard to help people out and get them into refinancing deals. They are working very hard at that.

“The banks do not want a whole load of these houses on their books so I think there is more help for people now,” he said.

It also has to do with efforts by Illinois state treasurer Alexi Giannoulias. His satellite offices in Springfield and across Illinois provide paths to counselling services and advice clinics to help struggling homeowners.

The drive is part of a special effort to keep Americans from giving up in the midst of constant bad news and help them to budget their way through the hardship.

The work ties in with efforts at a federal level to provide financial assistance to families about to go under. In these cases the government provides repayment assistance through its economic stimulus package.

Steve Dove is a real estate agent in Springfield and last year was elected to the city council.

He said although foreclosures have become more frequent in recent years house prices themselves have not crashed.

Mr Dove said in Springfield’s case residents are not losing their homes because of negative equity, but instead begin to suffer when their circumstances change.

Also he said the official foreclosure figures do not account for the “cash and key” deals.

This is a popular option for owners to surrender their homes back to the bank for a small cash payment and walk away before the courts get involved. By doing this their credit rating remains intact.

“What happens generally is people got into a loan on an adjustable rate and the adjustments have come due now (and interest rates are much higher). Having that extra bit to make up pushes them under.

“A lot of times as well you see family breakups where there was two incomes and now there is one. Or as well when one partner is in the military and is overseas the cost of running the house falls on one person and that hits,” he said.

Generally house prices in Springfield have not suffered as badly as the holiday-home regions in the south.

At the end of August the average sale-price for a standard family home was $127,712 (€89,952), up from when the market bottomed out at $109,000 in December 2006.

And, after the subprime crisis wreaked havoc in the latter part of 2007, buyers are returning to the market.

The amount of sales are down by 14% this year but again this has rallied from the 28% drop at the beginning of 2008.

Houses sold in August spent an average of two months on the market compared with more than three for properties that changed hands in March.

Now local real estate is witnessing a new phenomenon. Large investors from Florida and Arizona are snapping up foreclosed properties at knock-down prices.

This has helped keep the market buoyant and prevented a glut of cheap foreclosed properties from dragging down the market as a whole.

Like many cities across America the threat of attacks from the various forces driving the country’s economic recession loom large.

Springfield is a convenient commuter base for the large cities of Chicago and St Louis so fuel prices can have a disproportionate effect on the weekly budgets of some residents.

The locality is also striving to shelter its labour force from external threats. The city lost its manufacturing base in the early 1990s and made a concerted effort to attract investment in high-skill jobs, similar to the Government’s current strategy for Ireland.

Now the city is worried its base is spread too thin and Mr Dove said the council is looking to encourage another blue-collar industry to move to Springfield to improve the diversity of its economy as it feels it cannot rely on high-end business alone.

But separately the Illinois governor Rod Blagojevich wants to take civil service jobs from the state capital in Springfield and move them to more depressed towns, in a move similar to Charlie McCreevy’s decentralisation programme.

Initially this would see 150 department of transport posts shipped out of the city costing the local economy in excess of $10m a year.

Mr Dove said this, coupled with higher living costs, could have a disproportionate impact on a small city.

“In any town you see a loss like that and it is going to hurt. Not all those people will move because they have homes here but it is still going to affect us,” he said.

The rescue of Freddie and Fannie by the government brought immediate elation to the stock market and investors who had been waiting two months for the deal to go through.

It also led to a drop in interest rates as lenders became more relaxed about offering loans.

But after the big banks fell, commentators have begun doubting smaller banks, particularly in midwestern states like Illinois, fearing they could be next.

Most states profess their community banks did not delve into the subprime sector like the large institutions and will be able to ride out the turbulence.

But their promises have yet to ease the fears of investors or potential buyers.

Overall Mr Dove said he does not expect the buyout of Freddie and Fannie to have a significant impact on the housing market in cities like Springfield.

He said within the real estate industry people do not think it will spur an immediate boom but it is welcome the issue is off the table for the moment.

Mr Dove said from phone calls he has received people are returning to the market of their own accord and so far 2009 looks promising for Springfield, and perhaps America.