Why does Columbia have the second highest rate of foreclosures in the country?

As foreclosure rates across the country continued to fall in the first half of 2024, the city of Columbia had among the highest rates, according to real estate research firm ATTOM Data’s latest report .

Columbia had the second highest rate of foreclosures for a metropolitan area with over 200,000 people. And it’s not the only city in South Carolina to make that list. Spartanburg was the metropolitan area with the fifth highest rate of foreclosures.

While some experts have said that the rate, although troubling, is small and still near recent historic lows, others have cautioned that foreclosures could be a bellwether for broader economic problems.

In the first six months of the year, 0.31% of all homes in Columbia went into foreclosure, according to ATTOM. This was second only to Lakeland, Florida, with 0.32 percent of all homes. Spartanburg saw 0.27 percent of homes go into foreclosure.

Experts who spoke with The State said that national economic trends were likely at play in driving foreclosure rates. An end to COVID-era moratoriums placed on foreclosures as well as rising costs due to inflation and high interest rates were among the chief factors.

Homeowners who purchased homes that were at the higher end of what they could pay, even if they met the requirements for underwriting, and who took out loans they couldn’t afford were likely the most affected by this, said Felicia Kilgore, director of community development for the City of Columbia. Those homeowners were the most exposed to rising interest rates and had little wiggle room when it came to unexpected costs for repairs or other major life events.

“Life happens,” Kilgore said. “The cost of living across the board has gone up, which stretches the dollar for the family.”

During the pandemic, government agencies and mortgage providers expanded the range of forbearance options to borrowers, allowing them to pause or reduce their monthly payments. But these pauses did not affect the underlying loan, which still needed to be paid off in full at a later date.

“One of the issues is that people come off these forbearance programs and they don’t have the money to pay for it,” said Mark Fessler, head of the housing unit at South Carolina Legal Services.

Columbia’s job market contributes to some people being less resilient to economic pressures created by rising costs, said Sue Berkowitz, policy director at the Appleseed Legal Justice Center, a nonprofit that advocates for low income South Carolinians.

“It’s not because we have high unemployment, it’s because people are not being paid a living wage,” Berkowitz said.

While Columbia’s unemployment rate is below the national average, at just 3.5%, nearly a quarter of the city’s population fell below the poverty line in 2022, according to census bureau data. In Spartanburg, 25.7% of the population fell below the poverty line.

Despite Columbia’s current ranking, the rate is less concerning in a broader, historical perspective said Nick Kremydas, CEO of the South Carolina Association of Realtors.

“You really have to look at the long term — the 20, 30, 40, 50 year average,” Kremydas said, who emphasized the rates were far below the heights of the Great Recession. In the years that followed the 2008 financial collapse, driven largely by bad housing loans, between 2% and 3% of homes around the country were in foreclosure.

All told, in 2009, at the height of the crisis, approximately 10% of the nation’s homeowners were either at least 90 days behind on their mortgage or were in foreclosure, according to the Federal Reserve Bank of St. Louis.

But just because the overall rate is good in a historical sense, Berkowitz warned that policymakers shouldn’t take Columbia’s ranking lightly.

“We have to look at the whole economic picture of what’s happening,” Berkowitz said. “And I think Columbia should be worried if we are having higher foreclosures, because that says that people are in economic distress.”

Legal protections for South Carolinians end

While today’s foreclosure rates are far below the highs of the Great Recession, some experts warn that the recent rollback of foreclosure protections by the South Carolina Supreme Court could harm homeowners if economic conditions worsen.

In May 2023, the South Carolina Supreme Court rescinded two orders that had been put in place to protect homeowners from foreclosure in the wake of the 2008 housing market crash.

Among other requirements, the orders required lenders to certify that they had reviewed all of the borrower’s records, that an attempt had been made to pursue foreclosure intervention, also known as loss mitigation. The orders also prevented any foreclosure hearing or sale until the homeowner had received notice of their right to foreclosure intervention.

While federal laws are still in place that require most lenders to give homeowners an opportunity to qualify for loss mitigation, Fessler said he was concerned that ending some of South Carolina’s protections could lead to a return of an issue known as “dual tracking.” Where court orders previously prevented a foreclosure suit from proceeding until loss mitigation had been completed, now they can carry on at the same time.

“A lot of borrowers assume, ‘if I send you my loss mitigation application, I’ve answered, I’ve responded, I’ve done what I need to do,’ and they just don’t pay attention to the lawsuit,” Fessler said, adding that many homeowners mistakenly think that those processes are connected, which they no longer are.

Homeowners are often blindsided then when they then discover that the lawsuit has continued and the court has allowed a foreclosure to proceed.

“If you don’t answer the lawsuit, you are held in default, and therefore you lose the legal right to present any sort of defense you might have had,’ Fessler said.