Do subprime woes affect Seattle market?

Q: Local real-estate experts keep saying Seattle's housing market will stay strong because the local economy is strong. But I think all the subprime loans going bad will mean a lot more houses on the market and prices here will sink. Why don't you report that?

A: Let's start with an interesting fact from Douglas Duncan, chief economist for the Mortgage Bankers Association: More than one-third of all homeowners have paid off their mortgages (or paid cash). This significantly decreases the potential for overall risk.

However, the growing crisis in the subprime mortgage industry, fueled by an increasing number of mortgage defaults, is real.

How much of an effect it may have is very location-sensitive, said Bob Visini, a spokesman for LoanPerformance, a California company that tracks nationwide mortgage activity.

The Seattle/Bellevue/Everett area "is exposed," but way down the list, Visini said.

The Seattle area is in the bottom 20 percent for subprime mortgages among 331 major metropolitan areas — far below other parts of the country, particularly parts of Texas and California's Central Valley where subprime accounts for nearly a fifth or more of all mortgages. At the top of the list was McAllen, Texas, where some 26 percent of loans are subprime.

By comparison, only 7.9 percent of all Seattle-area mortgages were subprime at the end of 2006 (ranking 278th out of 331), down from 8.7 percent the previous year.

And only a fraction of those loans were in trouble — some 7.6 percent at the end of 2006 were 60 days late or more, a sign foreclosure is looming. This put Seattle in the bottom 10 percent.

By contrast, Cleveland and Detroit had a quarter of their subprime loans seriously overdue at the end of 2006. Corvallis, Ore., had the fewest seriously overdue — just 3 percent.

There are two reasons subprimes have a higher chance of going bad than prime-rate loans.

First, homeowners who qualify for the best rates have significantly better financial health, as evidenced by their higher credit scores. This positions them to withstand issues that can quickly sink less financially sound borrowers. Job loss, divorce and illness are three commonly mentioned.

Second, most subprime loans have an adjustable rate. When they adjust upward after two or three years, borrowers who are strapped paying a lower amount can lose their homes unless they can find another low rate with payments they can afford. Lenders are tightening up on their borrowing standards so that's not as likely as it's been in recent years.

But even then, those homes that do go to foreclosure won't all go at the same time, Visini said. "It's a gradual thing."

Q: Several young adults have moved into a rental house across the street. One plays his car stereo very loud when he's coming and going late at night. He's also had verbal fights with his friends on the front lawn, and there's a lot of swearing. This is disturbing our peaceful neighborhood. What can I do?

A: If you handle it right, and the young man is amenable, this can be what's called a teachable moment, said Andrew Kidde, co-manager of the 11-year-old Bellevue Neighborhood Mediation Program.

"Consider this in some ways as an opportunity for you, not in an arrogant or patronizing way, but with some grace about it, to teach what it means to be a neighbor," Kidde said.

Many young people, he added, don't know what it means to act like an adult around other adults. They won't learn "unless people talk to them civilly and model the kind of behavior and relationship they'd like to have," he said.

Mediators say using "I statements" — versus "you statements" — is one of the most effective ways to get your message across.

For example, instead of saying "You're acting like a jerk when you play your car stereo loud," a mediator might advise something like: "I feel anxious when you play your stereo loud because I'm afraid it will awaken my children."

Kidde says "I statements" help other individuals see you as a person and understand the effect of their behavior.

He suggests that you consider how you might approach your neighbor in a non-threatening way that still gets your concerns across. Let him know those concerns are important.

If you want more coaching, or want a neutral third party to approach your neighbor on your behalf, call your local dispute resolution center.

Most Washington counties, and some cities, have them and they handle a wide variety of conflicts: neighborhood, workplace, school and marriage among them. Often the services are free. The Web site www.resolutionwa.org has links to centers around the state.

Q: Months after I signed paperwork to buy a condo conversion, the developer doing the work informed me that my unit is 16 percent smaller than originally advertised. Since he won't adjust the price, I now figure I'm paying $28,000 too much. Other buyers got similar news. The developer says I must sign an addendum accepting this change. He says if I don't, he can keep my deposit. I don't know what to do.

A: Seek the counsel of an experienced real-estate attorney before you sign anything.

This is really the only way you can know exactly where you stand and what your options are. A good lawyer can be a reality check, a fact-checker, a fact-obtainer and a saber-rattler.

An attorney also will think of ways the change in square footage might affect you.

For example, if you're getting a mortgage, you likely told your lender the size of this condo.

If you now know the size is different, and don't share this with your lender, it could get you in trouble with that lender, said Seattle attorney John Coe of The Coe Law Group. In fact, the lender could nix the loan or require a reappraisal, something you might not be able to get done on time.

An attorney can also evaluate whether the developer can keep your deposit if you don't sign the addendum.

"It depends on what the purchase and sale agreement says," Coe noted.

But otherwise he's not confident a developer who unilaterally changes the terms of a sale could keep a buyer's deposit.

Home Forum answers readers' real-estate questions. Send questions to Home Forum, Seattle Times, P.O. Box 1845, Seattle, WA 98111, or call 206-464-8510 to leave a question on a recorded line. The e-mail address is erhodes@seattletimes.com. Sorry, no personal replies. More columns at www.seattletimes.com/columnists.