But it's no wonder they can't figure it out—there is no one-size-fits-all explanation. There are many reasons for all the foreclosures in the Franklin Township area and throughout Indiana. Here are three big ones: First, Indiana lost roughly 100,000 manufacturing jobs over the past six years. That may turn around somewhat, since Honda is building a plant in Greensburg, Ind., that will employ 2,000 people and bring supplier jobs to the Indianapolis region. But the reality is that the state lost 17,108 manufacturing jobs in the last year alone, and people who are out of work are more likely to foreclose.
Second, Indiana has more affordable housing than most states, which means that new homes are accessible to young people in entry-level jobs. Many of these young families are much like the Popes, meaning they live on tight budgets and depend on overtime to make ends meet. Some of these buyers say they were not told they would need extra money in their monthly budgets to cover routine maintenance and repairs or escrow money for annual property taxes. So, when something goes wrong with the car or a spouse has to take care of a sick child, the bills pile up and families fall behind.
And, Indiana did not experience the dramatic rise in property values that homeowners enjoyed on the East and West coasts. Couple that with more and more foreclosed properties on the market, and it gets tougher and tougher for families to sell their homes and get out with the money they put into them.
MORE FORECLOSURES AHEAD?At press time, the locals in Franklin Township had just received their property tax bills. The new bills are based on 2004–2005 property values as opposed to 1999 values, the way they were before. The reassessment, combined with double-digit budget increases on many line items, resulted in average property tax increases in Franklin of 35 percent or more. Tack on rising interest rates on subprime and 2-1 buydown loans and residents are concerned more people will face foreclosure. The issue is having statewide impact: By late July, Republican Gov. Mitch Daniels was looking at holding a special session on the property tax issue and having some counties redo the assessments.
“If property taxes go up, all the people will be gone,” says the schoolteacher who lives near Pope. This news is plenty disturbing to home builders, and some builders think the lending community has a lot to answer for.
Foreclosure Activity by MSA
Credit: RealtyTrac Data: MSO Foreclosure Activity - Jan. to June 2007
“As a builder without a mortgage lending arm, we've got some separation from the lender,” says Tom Eggleston, CEO of C.P. Morgan, based in Indianapolis. “We work with 25 different lenders, about six of which do the FHA-backed loans, so subprime lending is a small percentage of our business,”
Eggleston says. Eggleston insists his company makes prospective home buyers aware of the risks of homeownership, including full disclosure about local property taxes. In addition, the builder refers buyers to www.homebuyerconnection.com, an informational Web site about homeownership it sponsors with Chase, Countrywide Home Loans, and Wells Fargo, among others.
Rector of Arbor Homes says his company works hard to educate home buyers on the responsibilities of homeownership, as well, but adds that home builders can't legally make certain value judgments about prospective buyers.
“If someone walks through my door and wants to buy a home, I can't say, ‘I'm sorry, I don't think you're ready for homeownership,'” Rector says. “I'd set myself up for lots of lawsuits.”
In next month's issue, BUILDER will conclude this story by looking at analysts' best guesses on when the downturn will end.