A strong economy and steadily rising home values have helped insulate the area from the crash in the subprime mortgage industry.
Tamara Marshall has lived at 626 Courtleigh in southeast Wichita since 1984, but now faces foreclosure.
She needed money to pay bills, so she took out an adjustable-rate mortgage in 2006 at 8.69 percent. It rose to more than 12 percent by February of this year.
“I had to,” she said. “I was desperate.”
Then she got sick, couldn’t work and fell behind on her payments. She’s putting her house on the market this week.
Stories like Marshall’s have been told and retold around the country this year as the nation has witnessed the slow-motion crash of subprime mortgages.
There are hundreds of cases such as Marshall’s in the Wichita area: people who have taken out subprime mortgages and then realized they couldn’t afford them.
But while subprime mortgages and subprime foreclosures have risen over the past few years, in Wichita they have remained relatively flat over the past year.
Whereas Wichita once had more subprime loans and more delinquent ones than the national average, it is now below the national average.
“It’s not that bad,” First American vice president Bob Visini said of Wichita’s rate. “Well, it’s bad, but not that bad.”
One estimate places the percentage of subprime loans in Wichita at 11,900, or about 12 percent of all mortgages, as of June. Of those, about 4.3 percent were in foreclosure.
In other words, roughly 0.5 percent of all Wichita-area mortgages, or about 500 homes, were subprime mortgages in foreclosure, according to First American LoanPerformance, a real estate finance market firm.
That compares to about 0.8 percent of all mortgages nationally that are subprime mortgages in foreclosure.
More importantly, the impact on Wichita’s economy of those foreclosed subprime loans is nowhere near the scale here as it is nationally, say experts.
Helped by a strong economy, steady house appreciation and affordable home prices, Wichitans are avoiding the worst problems.
Still, there are enough that Attorney General Paul Morrison and State Banking Commissioner Tom Thull are forming a task force to look into predatory lenders who misled people on exactly what they were agreeing to.
“I believe that mortgage fraudand subprime lending are significant reasons for this increase (in foreclosures), and I have formed a task force to investigate the problem further,” Morrison said in a news release on the issue.
Kevin Glendening, deputy Kansas banking commissioner, recently sounded a more measured tone on the task force’s mission.
“There’s a significant amount of public interest, and we simply want to get the various players together, get the facts and dispel rumors,” Glendening said.
“Most of the credible evidence that I have seen is that the bulk of the problem is in six or seven states.”
Why a subprime mess?
The subprime mess is a crisis mainly for Wall Street and a few states with falling home prices, said Stan Longhofer, a Wichita State University economist specializing in real estate.
Subprime mortgages typically were sold by local banks and mortgage companies that then sold them to the secondary market. They were bundled together and became the cash flow supplying the interest on bonds purchased on Wall Street by companies.
It turns out these bonds were riskier than first thought.
That’s because subprime mortgages were used heavily in California, Florida, Arizona and Nevada, where home prices were shooting up 30 and 40 percent a year.
There are two groups of people taking out subprime mortgages: regular homebuyers with bad credit and house flippers, people who buy houses and resell them as quickly as possible.
House flippers don’t expect to hold onto houses for long and so they seek the lowest payment possible, often exotic loans such as interest-only mortgages.
That worked fine until home prices in places such as Phoenix and Las Vegas started to fall. Once the flippers found they couldn’t sell the house at a profit, they just walked away.
However, regular folks who stretched to buy a place to live in an area where home prices were skyrocketing are another, and much sadder, story.
As their interest rates reset higher, they discovered they couldn’t afford their mortgage. As home prices fell, they also found they couldn’t sell the house high enough to recoup the money to pay off the loan.
The consequence: foreclosure.
In Wichita, as in most of the country, the situation is better.
Wichita’s economy is very strong right now, which tends to slow rises in foreclosure rates, Longhofer said.
It may not mean much to local banks because subprime loans tended to be resold for those Wall Street bonds. But some banks held onto their loans and, for them, subprime loans could be a problem.
There was a lot a pressure on conservative lenders in the last few years to loosen up, said Dan Jones, first vice president and regional lending manager for Capital Federal Savings.
“The fundamentals of homeowner success were ignored by the lending industry,” he said.
Cap Fed never did make any subprime loans, he said, although it does offer some higher-risk loans.
Most importantly, Longhofer said, there never was a speculative bubble here, driving up home prices.
That means home prices can still rise. Longhofer estimates home values appreciated 3.8 percent this year and forecasts 4.4 percent next year.
And that means, Longhofer said, that Tamara Marshall has a decent chance of getting her house sold for enough to pay off the loan.