Changes in lending requirements and a stronger economy have once again led to a decrease in the number of homes entering foreclosure, a local banker said.
This year, Johnson County and other counties across central Indiana had another drop in sheriff sales, one of the first steps in the foreclosure process.
Locally, 303 homes were set for sheriff sale, a 19 percent drop from 2016, and a significant decrease from a high of more than 1,200 in 2009-10. Across central Indiana, other counties reported similar decreases, according to local sheriff’s offices.
The primary reason for the drop in foreclosures is a better economy since the recession, said Bob Heuchan, Mutual Savings Bank president.
“If there were people that were on the brink, the recession brought it out,” he said.
An improved economy helps in multiple ways, from a low unemployment rate to higher home values, he said.
In the past, multiple properties that went into foreclosure were worth less than what was owed on them. But now, with increases in values locally and nationwide, homeowners have more equity, meaning the property is worth more than what’s owed in mortgages or loans, Heuchan said.
“If your property is worth more than you owe, you work harder to keep it,” he said.
Another significant factor are changes in regulations on mortgages and loans meant to protect customers, Heuchan said.
Buyers who want a loan have to meet stricter requirements, such as for income, and lenders are required to give people more information, especially for loans with adjustable interest rates, he said.
That means more people currently are renting, but that isn’t a negative, as renting is simply the wiser option for many people, he said.
Before the recession, potential buyers were convinced that renting was a bad investment, and that they should buy a home, even if they couldn’t truly afford it, Heuchan said. And those same people also were pushed adjustable rate mortgages, with the idea that in a few years their income would go up and their home value would increase, and that wasn’t always the outcome, he said.
A big change in the requirements is that lenders have to take a serious look at the buyer’s ability to repay the loan, said Chris Schaefer, Mutual Savings Bank compliance officer.
Lenders have to project out five years and make sure the person will be able to pay their loan then, whether it has a fixed or adjustable rate, he said. That means looking to see if anything could change and impact their income, such as if they lost Social Security benefits, for example, he said. That is something Mutual Savings Bank always has looked at, but that may not have been the case for other lenders, he said.
In addition, anyone making loans now has to be registered with a national mortgage licensing service; this includes keeping their fingerprints on file and displaying their license in their office, he said.
The changes are all meant to cut down on predatory lending practices that contributed to the recession, Schaefer said.
Here is a look at the number of homes set for sheriff sale in 2017, which is one of the first steps in foreclosure. Homes can be removed before the sale, and some can be listed more than once.
SOURCES: County sheriff’s offices