Subprime loans lead to uptick in foreclosures

Widespread problems not expected in Alaska due to lack of Outside lending

Posted: Monday, January 07, 2008

More homeowners in Juneau are losing their properties to foreclosure, but industry insiders don't expect the problem to become widespread in Alaska.

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Lenders who issued millions of subprime loans to questionably qualified home buyers around the United States did not do a wide range of business in Alaska, so foreclosures won't hit the crisis level seen in other markets, said Sherrie Simmonds, spokesperson for the Alaska Housing Finance Corporation based in Anchorage.

"Most of the lenders up here were conservative," Simmonds said, "so we're not seeing the concern that there is Outside."

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Local lender Cathy Johnson agreed.

"Getting subprime lenders to lend in Alaska is difficult because they don't understand our markets," said Johnson, a mortgage consultant with Residential Mortgage. "Alaska is so small, it took time for these lenders to do a lot of business here."

But effects are still being felt.

In 2007, there were 20 residential foreclosures in Juneau, compared to seven each year during the prior two years, according to Motznik Information Services, an Anchorage-based company that tracks foreclosures through the Alaska State Recorder's office.

The specifics in Alaska's recent foreclosures show the increase might be a result of subprime lending to under-qualified buyers.

"It is sad to see the majority of these defaults are from people who have been in their home for less than two years and have absolutely no equity, and the loans are usually under $200,000," said Lori Davey, president of Motznik Information Services.

Johnson, who pays attention to loan delinquencies for her work in the Juneau-based mortgage office, said she noticed a tripling in the number of homeowners struggling to keep up with payments during the past year.

And while the Alaska Housing Finance Corporation, a public corporation that operates under the Alaska Department of Revenue, sees an average of one to four foreclosures per month within its client base, there were six in November.

These figures and sentiments show that Alaska communities are not immune to the subprime mortgage crisis being felt in the Lower 48, but local banker Craig Dahl said the number of problem loans were likely so few that, from a market perspective, new foreclosure statistics will remain insignificant.

Dahl is president of Alaska Pacific Bank and a long-time member of the American Bankers Association's Government Relations Council, which is lobbying Congress for changes in lending regulations.

The bank, one of the top three residential lenders in Juneau, made a decision to not issue products such as 40-year, no-interest home loans that started to become popular about a few years ago with steep home price increases in some of the nation's "hot" markets.

It proved to be adjustable-rate mortgages that caused most of the angst elsewhere, as interest rates went up and homeowners couldn't afford higher payments. More than three million home loans are expected to go into default in the next 2½ years, according to the Associated Press.

Forty percent of the loans made by Alaska Pacific Bank last year were issued to people making below-average income, but that doesn't mean they were subprime loans, Dahl said. Subprime is defined as a risky or less than ideal investment.

"We try to find ways to make a loan work, but it doesn't mean we do it at any cost," Dahl said. The bank carries $160 million in residential loans; as of last week, eight were past due and not one was in foreclosure, he said.

A lack of attention from subprime lenders could ultimately protect Alaska's real estate market, even as other markets crash as banks unload foreclosed properties.

"We just don't expect that to happen at all," Simmonds said.

While prices have leveled off and homes are taking longer to sell, Alaska is seeing a normal adjustment in the market, she added.

• Contact Kim Marquis at 523-2279 or kim.marquis@juneauempire.com.



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