House Wrecked?

What to do if the foreclosure crisis hits close to home.

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Credit Crisis

Brad Hicks, 26, and his wife, Stephanie, 33, waited years to buy their first home. Once they did, the bottom fell out almost overnight. The couple earned less than $40,000 in 2006 between her clerical job and his work on his father’s dairy farm, where they lived in a small house while looking for one they could afford. Last fall, they signed a contract to buy a new three-bedroom ranch on an acre and a half near Roanoke, Virginia. It was a stretch, but they were ready to have children and wanted to raise them in a home of their own.

The house wasn’t finished, so the Hickses, relying on advice from a builder and a local mortgage broker, arranged for financing to cover the $204,000 purchase price of a new modular home (including $40,000 for the land). The couple, who didn’t have to make a down payment, were told that a short-term loan with a steep 10.24 percent interest rate would cover construction costs. Once they moved in, that loan was to be rolled over into a subprime mortgage that allowed interest-only payments for the first ten years. That, they believed, would allow them to meet their housing budget of $1,000 per month. Covering the payments would require significant sacrifices, but realizing the dream of owning a home made it worthwhile.

Just weeks after taking possession this past March, though, the Hickses found themselves smack in the crosshairs of the country’s spreading credit crisis. With the subprime market collapsing, their lender rescinded the originally promised loan. Credit was drying up for no-down-payment deals like the one they had been offered, and they were presented with new mortgage terms that called for a $1,700 monthly payment. The couple were devastated.

Says Stephanie, “We couldn’t afford that.”

This year, the rate of homes in foreclosure has risen to an all-time high. To help ease the pain for homeowners and lenders, the Federal Reserve cut the prime interest rate in September. Still, with a stagnant real estate market and the stark reality of hundreds of thousands of homeowners whose mortgages call for higher interest payments, some experts think the worst may be yet to come.

So more and more homeowners are facing tough choices about their most valuable asset. Those with adjustable rate mortgages who want to keep their homes—the majority of the ones being squeezed—will have to make big sacrifices: no new cars or computers, and fewer vacations and meals out (and forget extras like an upgrade to a flat-panel TV). And when consumer spending softens, the entire economy suffers. For the first time in years, economists are tossing around the R word: recession. For homeowners caught in the crunch, the impact is more personal. It can mean complete financial ruin.

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Following the recent mad cow disease scare in our state, one local rancher sought to allay fears by posting this sign: "All our cows have completed anger management classes."

-- A.C. Boyette

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