Few homeowners are immune to Detroit area's foreclosure pain

Todd Alford put his Dearborn, Mich., house on the market in February when he lost his job as a Ford Motor marketing executive. He hasn't received any offers.

"The real-estate market has plummeted because of auto industry layoffs and the foreclosures that go with it," said Alford, who put a $215,000 price tag on his family's three-bedroom brick bungalow.

Alford is selling in an area where almost no one is buying.

Metropolitan Detroit led the nation in foreclosures last year as the auto industry's losses left more than 350,000 people jobless, giving the state the highest U.S. unemployment rate.

While regulators and lawmakers focus on the crisis in subprime mortgages, Detroit is evidence that even borrowers with good credit aren't immune to the risk of default.

The percentage of prime loans in Michigan that were overdue by at least 90 days was 0.67 percent in the fourth quarter of 2006. That was the third-highest in the U.S. after Mississippi and Louisiana, states still struggling to recover from Hurricane Katrina, according to a March 13 report from the Mortgage Bankers Association.

A year ago, the Michigan rate was 0.59 percent.

About 78 percent of Michigan mortgages are prime, given to the most creditworthy borrowers, just above the 77 percent national rate, the mortgage trade group in Washington said.

Even homeowners who haven't fallen behind on their mortgage payments are feeling the pain of foreclosures, said John Kilpatrick, president of Greenfield Advisors, a Seattle real-estate consulting firm.

Living on a block with multiple foreclosures can result in a 10 to 20 percent decrease in property values, he said. In some cases that can wipe out the equity of homeowners or leave them owing more than the house is worth.

"If you see a neighborhood with a couple of foreclosures on the block, a couple of auction signs in the yards, that's going to be a neighborhood that's stigmatized," Kilpatrick said. "The innocent houses that just happen to be sitting next to those properties are going to take a hit."

The challenges facing homeowners in the Detroit area show what can happen in a market where prices fall and an economy dependent on a single industry falters, said Ralph Marcus Maupin Jr., a real-estate investor in Highland, Mich., a Detroit suburb, who runs a seminar called "Foreclosure Bootcamp."

"People have over-borrowed, they've seen adjustable rates go up, and they can't pay their mortgage because they've lost their jobs," Maupin said.

The Detroit median home price fell 5.8 percent in the past three years, even as prices rose nationwide by 14 percent, data from the National Association of Realtors show.

The median price of a house in the Detroit area was $154,600 in the fourth quarter, trailing the U.S. median of $219,300, the trade group said.

Before Todd Alford left his job, he and his wife, Paula, spent $25,000 on renovations to their house, sure they would recoup that investment whenever they sold it.

They purchased it for $200,000 in December 2002.

Now the Alfords are hoping just to break even on the property.

Until they sell, Todd Alford is commuting five hours by car to his new job as a marketing executive with Honeywell International in Illinois, staying with relatives during the week.

A job loss isn't the only cause of a real-estate crisis for prime borrowers, said Maupin. A transfer can mean trouble, too.

"Falling prices and foreclosures affect everybody; they're not discriminating," said Maupin. "There's fear in the market because tomorrow your neighbor could go into foreclosure, and there goes your value. If you need to sell for one reason or another, you can't."