Lee County's subprime holes may deepen

For every 1,000 homes in Lee County, 62 are financed with the shakiest of loans.

Those loans are headed for trouble fast. Thousands are in foreclosure or behind on their mortgages and thousands more will see their interest rates skyrocket.

They are subprime loans, arranged with people with weak credit in exchange for higher interest rates or a low rate that adjusts after a set time, often two years.

Subprime loans are being blamed for the downward spiral of the nation's residential housing market.

In Lee County, 17,300 of 245,405 homes are financed by subprime loans.

Lee has one of the highest concentrations of subprimes in the country, ranking 16th, according to data from the Federal Reserve Board of New York, which compiles the information for the nation. By comparison, San Bernardino County in California is No. 1 with 84 homes per 1,000. Other Florida hot spots include St. Lucie, third with 79 homes per 1,000 and Miami-Dade, 14th, with 63 homes per 1,000. New York City has only 1 subprime loan per 1,000 homes.

Lee numbers

• Some 15,200 subprimes are for owner-occupied homes.

• Some 7,800 of the subprimes will reset with higher interest rates this year and next.

• Some 3,500 loans are at least 30 days behind on their payments.

As many subprimes slip into foreclosure, they're causing problems for a county already rocked with unemployment at a 15-year high; median home prices for an existing home down 34 percent since December 2005, from $322,300 to $212,500 in March; and a home-building sector flat on its back with a mere 86 single-family-home building permits in April, less than a quarter of the 419 a year earlier.

The more subprimes that fail, the longer it could take for Lee's housing industry to recover, experts said.

Some will go into foreclosure although others will avoid it, said Michael Timmerman, a Naples-based senior associate with Fishkind & Associates, an Orlando-based economic consulting firm.

"People know these things are resetting and they're already talking to the lender," Timmerman said. "People know the value of the property has gone down."

The silver lining is that houses become more affordable.

"It makes more sense to buy than to rent," he added.

Carol and Robert Rommel know firsthand the hardships faced by holders of subprime mortgages.

The couple, in their early 60s, bought a condominium in Bell Tower Park in south Fort Myers in September 2005 for $390,000 with a subprime loan and moved from Dallas. As prices dropped, they decided they could afford a house in Reflection Lakes. But the condo didn't sell and now they're struggling to cover two mortgages. They can't even refinance the condo loan because they'd have to pay a $10,000 early-out penalty, common under subprime terms.

For many people with subprimes, there isn't a lot they can do to keep from losing their investment, said Vincent Patti, vice president of Fort Myers-based First Capital Lending.

"What we're getting is a lot of them come through the door that there's not enough equity and there's nothing we can do," he said.

Their best bet is to throw themselves on the mercy of the lender, Patti said.

"I have seen a lot of the lenders stretching the terms for the reset," he said. "If it looks like it can be done, they'll extend the two years or three years. I've seen it happen a number of times, and it's happened to me personally on an investment property."

Banks are still cautious about giving away too much, he said.

"They seem to be looking for enough income that you can make the payment (under more lenient terms) but not so much that they won't give the farm away," Patti said.

For many, going to the bank would be an exercise in futility, said Robbie Roepstorff, president of Edison National Bank in Fort Myers.

Edison and most other local banks didn't do subprime loans during the boom - it was the big banks like Countrywide and Bank of America - and the local banks aren't getting any demand to refinance them now, she said.

Even for those with enough equity in their homes to refinance, it can be a rocky path, said Charles Costello, a real estate and mortgage broker in Fort Myers.

"When banks impose conservative, reasonable underwriting standards on someone who got into a subprime mortgage when fog on a mirror qualified you, and so many were self-employed and now are unemployed, independent contractors, that's the kiss of death," he said.

One bank, he said, recently asked a prospective lender for three years of pay stubs to prove a steady income.

Getting the lender to give you a better deal can be problematic as well, Costello said, because most subprimes were bundled up into mortgage-backed securities by Wall Street and sold to investors.

"It's difficult to modify a loan because nobody has the authority to do that," he said. "Because of the securitization, they're sliced and diced, a piece owned all over the globe."

The Rommels haven't given up on selling their condo.

"We're willing to bring money to the table," Carol said. "We'll take it out of our savings." Courtesy Fort Myers News Press
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