Waning property values and doubled interest rates have led to a one-two punch, resulting in the highest numbers of housing foreclosures ever seen in the area.
Essex County saw 2,358 foreclosure filings last year, a 72 percent increase over the 1,367 filed 2005. It is the state's third-highest increase behind Barnstable and Bristol Counties. Those two counties, on Cape Cod and the South Coast, saw 91 percent and 87 percent increases, respectively. In total, 19,487 statewide mortgage lenders filed foreclosures with the commonwealth's Land Court last year, with 11,493 being filed in 2005.
Foreclosure filings do not mean homeowners face the immediate threat of losing their property. Mortgage lenders file when borrowers fall behind on their payments by at least 30 days. Properties are seized when a financial solution cannot be reached.
Gloucester had 64 foreclosure filings last year as opposed to 36 in 2005 for an increase of nearly 78 percent. Of the 64 filings last year, lenders seized nine homes, while only four Gloucester homes were actually seized by lenders between 2003 and 2005.
Manchester saw foreclosures in 2006 rise to 13 from 10 the year before. Essex had 11 foreclosures in 2006 compared to six in 2005, while Rockport had one in 2006 with none reported in 2005.
Overall, Cape Ann had 89 foreclosures in 2006 compared to 52 in 2005 for an increase of just over 71 percent.
Katherine McNally, a mortgage professional at Carlson GMAC Real Estate in Gloucester, said foreclosures and home seizures are not going to decline any time soon.
McNally said two years ago, just after the housing boom reached its apex, people were confident that their low-interest mortgage rate would remain advantageous. But as the price of homes began imploding and interest rates have nearly doubled from 6 percent to 11 percent, once-confident homeowners are realizing they are faced with a housing bust greater than the one in 1991 when 17,000 Massachusetts properties foreclosed.
"These are homeowners who were underqualified when they got their mortgages," said Jeremy Shapiro, president and cofounder of ForeclosuresMass.com, an online company that tracks foreclosure filings in Massachusetts. "So they got creative loans that maybe weren't the best package for them. It was wonderful at the time, but not so good down the road."
Creative loans comprise, among other variables, no-money-down, adjustable interest rate first or second mortgages, and are usually made to people with bad credit histories.
The good news, McNally said, is that the dubious, less-than-ideal lending companies who targeted high-risk, underqualified buyers, are now going out of business.
But while some people look on those companies' closed doors with a Darwinian sense of accomplishment, the bad news is that a lot of homeowners have been left devastated by those companies.
Further damaging already suffering homeowners, Shapiro said, is the fact that the housing market has become a buyer's dream. "People aren't able to make their mortgage payments. They're desperate to get rid of their property. They're willing to do anything to sell," and that means they're at the mercy of today's buyers, he said.
So how can at-risk homeowners prevent going through a complete foreclosure on their property?
Both McNally and Shapiro said homeowners need to get in touch with their lender and work something out. Neither party, McNally said, wants the black mark of a foreclosure on their record. It looks bad for the lender, and it's worse for the borrower, who ends up with a 10-year blot on their credit history.
"If they can't pay their mortgage, have to move, or their house has been devalued," McNally said, homeowners "should always contact their lender. They have a choice."