Analysis: One in 513 local homes in stage of foreclosure

Letters from lenders lay strewn across Michelle Fuller's coffee table last Tuesday. They've piled up for weeks, reminding her she's months behind on her mortgage.

The latest warns that foreclosure looms.  A couple of months ago, the house across the street fell into foreclosure, following dozens of others in the South Norfolk area she calls home.

"It's a bad feeling walking out your door and seeing a nice home being foreclosed on and knowing you're next," she said.

Fuller, 43, bought what is her first home in 2005. Since then her monthly mortgage payment has jumped from $800 to nearly $1,300 as the interest rate adjusted upward. Work lately has been scarce for her husband, Mike, a construction worker, and, with just the income from her job as an assistant manager at a day care, they can't keep up with the house payments.

"It's really hard on people who are getting up every day, going to work, doing what we can to survive," she said. "And it's not enough."

Hundreds of Hampton Roads residents have found themselves in similar situations, struggling to keep their homes as the number of foreclosures mounts.

Foreclosure-related notices throughout Hampton Roads are up 2-1/2 times from year-ago levels, according to RealtyTrac, an online foreclosure-monitoring service based in Irvine, Calif. The growth in local foreclosure activity is outpacing the nation, where activity grew 41 percent in December compared with a year earlier.

Foreclosures here are not as prevalent as in such hard-hit places as California and Nevada, but the trend has touched nearly every neighborhood in Hampton Roads, from working-class Norfolk enclaves to the Virginia Beach Oceanfront with its million-dollar homes.

Even with interest rates at 40-year lows and relief packages being debated by Congress, economists and real estate experts expect foreclosures to get worse this year as home prices continue to fall, adjustable-rate mortgages reset and more homeowners lose jobs in the flagging economy.

"I wouldn't be surprised to see the numbers double or triple from where they are now," said James Koch, an economist at Old Dominion University.

Three years ago, one in every 13,000 homes in the region had a foreclosure-related filing. At the beginning of 2008, that number had risen to one in nearly 1,800 homes.

In December, it was one in 513 homes.

Such filings include bank repossessions, auctions of foreclosed houses and notices of default, which mark the beginning of the foreclosure process.

Part of the spike can be attributed to people losing their jobs, Koch said, but resets on adjustable-rate mortgages deserve a healthy share of the blame.

"These things go back a couple years," he said. "We're just coming to grips with what I term the 'ninja mortgages.' The subprime part of this has mostly passed, but we're going to continue to see more of these ARMs resetting this year."

Last year, 7,522 adjustable-rate mortgages in Hampton Roads reset to higher rates, according to mortgage-data tracker First American CoreLogic. This year, the firm predicts 4,728 more will reset.

Fuller said her mortgage rate reset more often than she'd expected when she signed for the loan. She'd thought she could refinance before the rate got too high but was turned down when she applied.

As her payments rose, she said she dipped into savings to make up the difference but quickly depleted those funds. Her husband left for Tennessee, where construction work is easier to come by, and Fuller is looking for a part-time job to catch up with the mortgage.

Fuller said she is still trying to renegotiate the loan with her lender, but so far to no avail. She doesn't know what she'll do if she loses the home.

"I have never been in this position," she said. "It's a horrible feeling."

Virginia Beach resident Michael May watched for weeks as the grass grew knee-high at the empty house across the street and bright stickers appeared on the door.

The owners of the two-story home in Chimney Hill abandoned it after trying to sell. From his concrete stoop, May can see other vacant houses, now owned by banks or lenders that repossessed them after borrowers stopped paying. In the past year, the neighborhood off Holland Road has seen nearly two dozen foreclosures, all within a half-mile of his home.

"I drive up and down the road and see the for sale signs everywhere," May said.

It's a pattern found in neighborhoods around the region.

In Virginia Beach, the worst foreclosure concentrations appear south of Interstate 264, running from Kempsville to Green Run and the area around Lynnhaven Mall. But Great Neck, Sandbridge and even the North End are not immune.

Foreclosures in Chesapeake dot neighborhoods throughout the city but are particularly concentrated in South Norfolk.

Working-class neighborhoods such as South Norfolk seem to have borne the brunt of the foreclosures to date. Few such neighborhoods in Norfolk and Portsmouth have been spared.

Olde Huntersville, Lindenwood and Barraud Park in Norfolk are particularly hard hit, as is Brighton/Prentiss Park in Portsmouth. Many foreclosures in those communities can be attributed to the now-defunct CM Development, which owned more than 250 homes in them before declaring bankruptcy in 2007.

In Suffolk, foreclosures are dense around downtown but also can be seen in the newer North Suffolk neighborhoods of Harbour View and off Shoulders Hill Road.

When the 49-year-old May moved into his Chimney Hill house on Dryden Street six years ago, asking prices for nearby homes were just above $100,000. During the peak of the local housing market, prices there reached nearly $280,000.

"There were a lot of people coming into the neighborhood at that time, maybe a dozen or so houses turned over," May said. "Some of these folks spent way too much for their house."

Home prices in Hampton Roads fell 7.3 percent in 2008. Koch expects them to decline between 5 and 10 percent in 2009.

Falling prices contribute to rising foreclosures, he said. As prices fall, homeowners who purchased at the price peak begin to owe their lenders more than their homes are worth.

"If nothing else, for someone who has the ability to meet their mortgage payment, if they see that they're underwater by $30,000 because of declining home prices, they could decide to walk away," Koch said.

A report released in November by home-value tracking Web site Zillow.com estimated that 15.7 percent of those who bought homes in the Virginia Beach-Norfolk-Newport News metropolitan statistical area in the past five years are "underwater" on their mortgages - owing more than their homes are worth. For those who bought in 2008, the picture is even bleaker: An estimated 34.5 percent owe more than the home's value.

That's the highest underwater rate for any U.S. metro area for homes purchased this year, according to Zillow.com.

A pile of rubbish littered the front yard of a small home on Bourbon Avenue in Norfolk's Lafayette/Winona neighborhood two weeks ago. An old car tire leaned against a thatch-weave bicycle basket. A small, wooden medicine cabinet lay on the ground, its mirror shattered. Part of an artificial Christmas tree jutted from the disarray.

Neighbors said the junk heap sat there for a week.

It's a typical calling card of a recent foreclosure. RealtyTrac records show the house had been in default for several months last fall.

The neighborhoods around the intersection of Lafayette Boulevard and Tidewater Drive have seen a lot of foreclosures. On the west side of Tidewater Drive, Lafayette/Winona has had about a dozen foreclosures in the past year. To the east, in Fairmount Park, the number doubles.

Chris Wallace, who lives on the corner of Bourbon and Moultrie avenues, hasn't seen his next-door neighbors in the foreclosed cottage in about a month. But he has his own problem. He put his house on the market two weeks ago, for the second time. The Navy lieutenant's orders are up in May, and he will be moving his family to San Diego.

"It's always bad to have a foreclosure in your neighborhood," said Wallace, 30.

Bank-owned homes can bring house prices down significantly in an area, said Barbara Wolcott, president of Prudential Decker Realty.

"The most negatively affected are those who need to sell," she said. "One foreclosure may not have that much effect, but if someone is driving through the neighborhood and sees several foreclosures, that's going to impact their impression of the neighborhood."

Wallace has lived there for more than two years. He put his home on the market for about six months last year, hoping to get a head start on his looming orders.

"We had about 20 people come through the house," he said. "But no one wanted to bite in this market. Bourbon is killing us."

The handsome, well-maintained homes of Moultrie Avenue may help his chances of selling in this market, but the garbage pile around the corner could do the opposite. The last time his home was for sale, Wallace even trimmed the grass on part of his neighbor's lawn.

"We always joked that we lived on the corner of good and evil here," he said. "If someone doesn't buy our house this time, we might just rent it out."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com