The Clark County foreclosure rate has been rapidly climbing since mid-2007, largely overlooked because most reports examine the larger Portland-Vancouver area, which has not gone up as much.

In Clark County, 4.44 out of every 1,000 homes were in foreclosure in the first quarter of the year. In the Portland-Vancouver metro area it was three out of every 1,000, and 5.09 nationwide, according to RealtyTrac, a national real estate-tracking service.

Across the county, 1,049 houses were in foreclosure through April, up fourfold from 2007. The spike has been fueled in part by a tightening credit market and a weaker housing economy, but house-flipping speculators also played a big role.

Speculators own as many as one in five homes in some newer neighborhoods in the county, and now many are losing those properties.

Behind the numbers are tears and tough choices for hundreds of local homeowners who can no longer afford their loans, and big financial losses for those whose real estate investments helped fuel the situation.

Climbing payments

Rising payments got the Murphys, Hazel Dell residents who say they did not understand the details of their adjustable rate mortgage, in trouble.

Their home’s value had climbed by more than $40,000 since they purchased it in 2003. They refinanced for $178,000 in 2005, borrowing from equity to pay off other bills. They struggled with the loan’s initial higher payments of $1,080 a month, about $100 more than they had been paying before the refi.

Then, on Jan. 1, the loan’s interest rate adjusted upward, bumping their monthly payment to more than $1,500. They couldn’t afford the payment, and they couldn’t come to an agreement with their lender.

“They didn’t really want to work with us,” said Mathew Murphy, 30.

The bank foreclosed, and has given the couple until later this month to move out of the 1950s-style, three-bedroom ranch where they were raising their 2-year-old daughter, Paige, said Jennifer, 28.

The Murphy’s situation is increasingly common as adjustable rate mortgages reset.

ARMs, in which payments can climb after an initial fixed period, made up 32 percent of home loans originated between 2004 and 2006 in the U.S., according to an analysis by First American CoreLogic, a California-based real estate analysis firm.
The first large round of low-interest ARMs started to adjust last year.

“There’s another wave of mortgage resets coming at us in 2009 and 2010,”  said Tim Duy, University of Oregon economics professor and real estate industry specialist.

As many as 13 percent of ARM borrowers could eventually wind up in foreclosure like the Murphys, First American projects.

Harder to sell, harder to buy

As families fall behind on payments, many have also found that it is increasingly difficult to sell in Clark County.

When Lamont Shaindlin’s commission-only sales income dropped last year, he could no longer afford his $1,600 monthly loan payments.

He tried to sell his Orchards-area house to avoid foreclosure, but said his lender, Washington Mutual, seemed indifferent to a short-sale offer of $195,000. In a short sale, the house is sold for less than the mortgage balance. Shaindlin owed about $199,000 on the loan.

“The bank could have mitigated their own losses,” he said.

Instead, unable to find a buyer willing to cover his debts, Shaindlin, his wife and two daughters had to vacate their Vancouver home of 11 years.

Buyers are sparse, in part because banks have increased requirements for income and for down payments in the past six months, and because many buyers are waiting out an uncertain market.

The median price of Clark County houses that sold in April was down 5.5 percent from the same month last year, and the number of home sales in the first quarter was down 38 percent, according to data firm Riley & Marks, which tracks every home sale recorded in the county.

With tighter lending standards, lower values, and a difficult market, people in foreclosure are stuck.

Speculation fuels the problem

A Columbian analysis of some of Clark County’s worst-hit neighborhoods found that many foreclosures are tied to real estate speculation and house flipping. (See map and chart for how different areas of Clark County compare).

Buyers bought, waited for prices to rise, and then pocketed tens of thousands of dollars with each sale. Now many of those speculators are hurting.

One Washougal house investor, who with her husband profited from several sales before the market cooled, was among dozens of investors in the Gables at Hiddenbrook Terrace, a 124-home subdivision off Southeast 192nd Avenue in Vancouver. She and her husband bought a new house in that neighborhood for $299,690 in August 2005. They also bought two homes in another new subdivision in Camas in 2006, one for $230,000 and another for $240,000.

Now at least two of these investment properties are in the early stages of foreclosure, as is the Washougal house where she lives.

For several years, the speculator, who asked that her name be withheld to spare her from embarrassment, was able to purchase houses and sell them at a profit.

“We were successful for a while, then the market got worse and it was hard to find a buyer,” she said.

Other speculators also bought into the Gables at Hiddenbrook, built by Matrix Development Corp. of Tigard, Ore. Of the subdivision’s 124 homes, at least 14 have entered the foreclosure process since late 2007. Another 19 are owned by people who don’t live in the neighborhood, a sign that these owners are likely investors.

Including those in foreclosure, 20 percent of these houses are not occupied by their owners and 25 percent have been sold at least once in the three years since they were built. Three property owners seem to have bought two houses each in the neighborhood.

Hurting communities

“In 2005 we had a situation that I would characterize as irrational exuberance,” said Mike Lamb, associate broker with Windemere Real Estate/Stellar Group in Vancouver.

Buyers thought the market would go up forever, and therefore borrowed deeply with the belief that they could sell if necessary, Lamb said.

In the Gables at Hiddenbrook Terrace, property owners who managed to sell before the start of this year made an average profit of 10.3 percent. Now, home values appear to be in decline. In April, buyers purchased a house in the subdivision for $273,000 — $43,416 less than it had sold for just months earlier.

Across the county, speculators are struggling to make payments. Nervous buyers are putting off home purchases, waiting to see if prices will drop more.

Foreclosures depress home values and also hurt communities, said Duy, the real estate economist. “There are downward price pressures on the rest of the neighborhood.”

High foreclosure rates lead to vacant houses, which can hurt a neighborhood in the long run, he said.

Meanwhile, people caught by high payments are abandoning their loans, Lamb said. “When you have no skin in the game, it’s easier to walk away.”

The Washougal speculator said she’s not sad about the prospect of losing three houses, including the 5,000-square-foot Columbia River-view home where she now lives. “It’s a nice house, but I can live anywhere.”

Neighborhood by neighborhood

Despite the broader trend, some Clark County neighborhoods have been relatively unscathed by foreclosures.

“I would venture to say there’s a really high correlation between the foreclosures and new home construction areas,” said Lamb.

The data bear that out.

Older Vancouver neighborhoods such as Fruit Valley and Ellsworth Springs have about three homes per 1,000 in foreclosure, up from a year ago but far below the county average. In Brush Prairie, where dense home construction was prohibited until last year, fewer than one house in 1,000 is in foreclosure.

Meanwhile areas where hundreds of homes have recently been built have the highest foreclosure rates in the county, among them Ridgefield, Salmon Creek east of Interstate 5, and Washougal.

What to do

There is help for people who fall behind on their mortgages, but sometimes it’s difficult to obtain.

The Murphys attempted to take advantage of the Hope Now Alliance, set up by the Federal Housing Administration last December to counsel homeowners at risk of foreclosure and act as a mediator with banks. The program, which aimed to help 60,000 delinquent borrowers nationwide, has so far worked with fewer than 2,000, according to a New York Times report.

“It was supposed to be helpful, but it wasn’t,” said Jennifer Murphy.

Hope Now officials repeatedly pledged to send information to the Murphys’ bank, but then never transmitted the documents as promised, she said.

People have not been satisfied with the national program, said Teri Duffy, executive director of the Housing Resource Center, a Vancouver nonprofit that offers foreclosure counseling. Duffy said local counselors make a huge difference. In April, the Housing Resource Center added a foreclosure counselor to provide hands-on local help to struggling homeowners. (See sidebar on page E1 for more information).

These local efforts accompany reforms aimed at curbing foreclosures, including a federal bill passed May 8 aimed at helping strapped borrowers to refinance.

For the 1,049 Clark County homeowners who have already entered foreclosure this year, however, these reform efforts are too little, too late.

Last week, Lamont Shaindlin drove by the house his family lost.

“It was still empty and the lawn was overgrown. We’ve found a place in the area, an apartment complex,” Shaindlin said. “It’s not the move you want to make, going from owner to renter.”