Report: Cape faces new wave of home foreclosures
Cape Cod foreclosures could continue to escalate over the next year for investors who used risky adjustable rate mortgages and little cash to land their dream properties.
The U.S. Office of Thrift Supervision expressed concern for Cape Cod investors in a recent economic commentary.
"These loans have or will soon experience a rate reset, and could cause great stress on the borrower and result in rising delinquency and foreclosures in the area," the federal regulators wrote.
In 2005, subprime lenders backed by Wall Street and even General Electric Co. flooded Cape Cod and the rest of the country with mortgages that offered artificially low interest rates for the first two years of a loan. But after that, terms called for those interest rates to reset at significantly higher levels.
Now, with falling housing prices, borrowers with adjustable-rate mortgages face higher monthly payments on loans that are worth more than their properties.
"There's a lot of pain out there right now," said Chuck Tuttle, head of the Tuttle Team at Oyster Real Estate in Osterville. He said it's not uncommon to see distressed properties on the Cape sell for 20 percent less than what investors paid in 2005.
Lance P. Gibbs said he fell behind on his mortgage payments even before his loan reset. In July 2005, he bought a home in Bourne for about $340,000 with two rental units using an adjustable-rate mortgage from GE's WMC Mortgage.
"It was more than we could handle," Gibbs said.
His hard luck continued when he fell off a ladder, and in being treated discovered he had cancer and struggled to find tenants for his rental units. Gibbs lost his property to foreclosure late last year. About that time, GE took a $1.4 billion charge against earnings, partly from shutting down WMC Mortgage.
Subprime problems continue to ripple across the Cape. Barnstable County, which includes Cape Cod towns, saw foreclosures surge 71 percent during the 12-month period that ended Oct. 31, according to ForclosuresMass.com. The year-over-year increase is several percentage points higher than the statewide average.
David Brennan, a senior vice president at Cape Cod Five Cents Savings Bank, said he sees signs that the Cape Cod market is working through elevated inventory levels.
And unlike many Wall Street firms, his bank largely avoided exposure to borrowers with weak credit. Cape Cod Five Cents' net income last year slipped only 7 percent while some large U.S. banks and brokerages saw profits evaporate, recording more than $100 billion in losses during the second half of 2007, mostly because of bad bets on subprime mortgages.
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