Foreclosures stable near 1%

LITTLE ROCK — The country is still in the throes of a home-mortgage crisis, but Pulaski County has been spared the worst of it.

The foreclosure rate for single-family homes in Arkansas’ most-populous county in 2009 was 1.44 percent, compared with 4.6 percent for the nation for the first six months of last year.

For the first eight months of this year, the Pulaski County rate was 1.01 percent, though that will go up by year’s end as more people get default notices. The state’s rate was 1.24 percent through the first five months of this year, according to First American CoreLogic of Santa Ana, Calif.

The county data were compiled through examination of about 4,100 files at the Pulaski County Courthouse by the Arkansas Democrat-Gazette.

Pulaski County and the rest of the state have not been hit as hard by the crisis because there wasn’t a large “bubble” of overvalued homes that burst, as occurred in some other parts of the country, said Michael Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock.

Still, the number of mortgage defaults in the county has risen every year since 2006, when 1,714 homes were offered at foreclosure auctions, according to courthouse records. That number jumped to 2,023 in 2007, 2,159 in 2008 and 2,812 last year. The county is on track to be well over 2,000 again, with more than1,750 through Aug. 31.

Only ZIP codes lying entirely in Pulaski County were counted by the Democrat-Gazette. Southwest Little Rock’s ZIP code 72209 area, containing the Meadowcliff and Cloverdale Watson neighborhoods, had the county’s highest default rate last year, with 3.02 percent of its 12,979 homes offered at auction.

Foreclosures do not happen in a vacuum. As homes are lost, a neighborhood suffers because prices of other homes in the area are lowered. And as they are lowered, loans move closer to costing more than the valueof the houses.

Each foreclosure “means another house that’s going to get dumped on the market, raising the overall supply of homes and potentially pushing someone else over the edge,” said Michael Larson, a real estate analyst at the Jupiter, Fla.-based Weiss Research Inc.

Melvin Tolbert, who makes mortgage payments on his house at 9600 Stardust Trail in the 72209 ZIP code, has noticed more houses on his block selling at distressed prices.

“It’s lowering the price of all the homes in the neighborhood, due to no fault of the people [selling theirhouses],” he said earlier this month while standing outside his two-bedroom home.

In 2008, Tolbert, a security guard, said he got behind on his mortgage payments, but instead of going into foreclosure he was able to work with the lender to lower the interest rate.

“I didn’t want to lose my house,” he said. “It’s not much, but it’s mine, and I didn’t want to rent a house somewhere.”

Pulaski County Courthouse records show Tolbert and his wife, Tracy, took out a $37,000, 15-year mortgage on the home in 2005.

Data gathered by the Little Rock-based Gadberry Group show that in 10 years the average annual income for the square block encompassed by Stardust Trail, Southwest Drive, Spanish Drive and Westward Road has dropped by more than $10,635, to $28,995. The number of households and population have remained unchanged, according to Gadberry, which provides location specific data and analysis on populations and households.

In 72204, the Westwood Pecan Lake area showed 2.53 percent of its 13,038 homes were in default in 2009. Its household income in 2010 is $36,883.

In 72207, which includes The Heights and Cammack Village, the average annual income is $112,379, with only 0.72 percent of homes defaulting and up for auction in 2009. That ZIP code has 5,228 single family households, Gadberry’s data say.

The lowest income in the county is in the Holt and Baring Cross neighborhoods in ZIP code 72114 - $19,400. However, at about 1.02 percent of its 5,953 homes foreclosed in 2009, it fared better than 72209 and 72204.

The highest default rate in North Little Rock was in the 72118 ZIP code, near the North Little Rock Municipal Airport, which had 1.82 percent of its 22,695 homes offered at auction during 2009. But its average income is more than twice as much, $44,670, than that of 72214.

Larson, the real estate analyst, said the Obama administration’s attempts to curb this cycle with home-loan modification and neighborhood-stabilization programs are being stymied by the sheer number of foreclosures, as well as flaws in the programs.

Lending practices before the housing crisis preyed on lower-income people, Larson said.

“In some areas, there was a lot of the really lousy lending and even predatory lending,” he said. Subprime mortgages triggered the housing crisis after hordes of borrowers began defaulting on their loans in 2006 and 2007, particularly when the interest on adjustable-rate mortgages reset at higher rates. Such loans are offered at an interest rate higher than prime, often to borrowers who don’t qualify for primerate loans.

Michael Feder, chief executive officer of New York-based Radar Logic Inc., a real estate data and analytics company, doesn’t think the real estate market will be turning around in the near future.

“I think buyers are so aware of the amount of inventory that they’ve become accustomed tothe fact that more is coming,” Feder said. “[People] will wait for more stability before buying because the price people are asking for today is too high.”

Between 8 million and 13 million foreclosures are expected to occur over the next five years, according to a March report from the Congressional Oversight Panel for the Troubled Asset Relief Program.

PROGRAMS CRITICIZED

Two federal programs to help curb the foreclosure crisis and stabilize neighborhoods are getting criticism because economists say they don’t do enough.

As of July, nearly 15 percent of Arkansas homeowners who entered the Obama administration’s Making Home Affordable Program didn’t qualify to have their monthly payments reduced. In August, another 6.42 percent of Arkansas homeowners failed.

The $75 billion government effort intended to help lower mortgage payments saw more than half of its nationwide applicants leave in August.

“[The programs] are doing good around the edges. They are solving some of the issues out there, and stopping some of the foreclosures,” Larson said. “[But] I think there’s been some naivete about the depth of this downturn.”

The Obama administration’s two Neighborhood Stabilization Programs, which are part of the American Recovery and Reinvestment Act of 2009, have also been criticized by analysts who say the money won’t make enough of an impact on distressed neighborhoods.

Little Rock and North Little Rock had two neighborhoods out of 56 communities awarded the grant money. They will receive about $8.6 million and $8.4 million, respectively, out of $1.93 billion allotted for the program to stabilize blighted residential areas.

With the grant money, 200 homes in Little Rock and North Little Rock are expected to be remodeled, or demolished and rebuilt.

Larson and Feder say the neighborhood investment helps a small number of people, but the overall effect on these neighborhoods will be minimal.

“Eight million dollars may seem like a lot of money to you and me, but in terms of stabilizing an entire neighborhood it’s not a lot of money,” Larson said.

Neighborhoods chosen in North Little Rock were the Baring Cross and Holt neighborhoods. In Little Rock, ZIP code areas 72202 and 72204 near Central High School were chosen for the stabilization funds.

The North Little Rock Housing Authority got $720,000 in stabilization money.

“Obviously $720,000 is not going to stabilize [Holt and Baring Cross],” said Jim Redman, executive director of the North Little Rock Housing Authority. “But at least it’s a good start to get some of the streets stabilized.”

Also working to shore up Holt and Baring Cross are nonprofit groups Argenta CDC and Habitat for Humanity.

Brad Williams, Argenta CDC’s executive director, is more optimistic than Larson and Feder. He said the foreclosure crisis hasn’t hit Pulaski County like it has other communities, and so the money will do more good.

The $8.45 million investment “will make a tremendous impact,” Williams said. “The work we’re doing here will prevent Baring Cross from becoming more blighted and ... beyond repair.”

Habitat for Humanity is working on both sides of the river. Paige Perritt, director of development for Pulaski County, said people in the neighborhoods where Habitat is working have been excited about the prospect of fixing up some of the abandoned homes.

Yet, Roddy McCaskill, a real estate agent in Little Rock, said the hardest-hit areas could suffer another blow because homebuyers might not want to move into an area where there have been a lot of foreclosures, choosing instead to live in stable neighborhoods.

Information for this article was contributed by Cecily Long of the Arkansas Democrat-Gazette.