.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Each Thursday morning, a small crowd gathers inside the east lobby of the Midland Building, waiting for Kelly Michael to emerge from the elevator with a stack of folders for the weekly auction of foreclosed houses.

That stack has become much larger lately, as the number of foreclosures in Polk County has soared.

“It’s crazy,” Michael said after completing the morning’s auction of about 30 houses. A program specialist with the Polk County Sheriff’s Department’s Civil Division, Michael said she typically processes about 25 new foreclosures each week, but lately has seen more than double that number coming in.

Year to date, foreclosure activity in Polk County is up 18.5 percent over last year, as measured by the number of properties scheduled for auction. Through the month of May, lenders have already foreclosed on 634 houses in the county, compared with a year-end total of 1,222 in 2006.

In the first quarter of 2007, the number of U.S. mortgages in default or in the process of foreclosure increased by 35 percent compared with the first quarter of 2006, to 437,498 households, according to RealtyTrac, an online marketplace of foreclosure properties. During the same period, foreclosures in Iowa jumped 27 percent, to 1,803 defaults or foreclosures.

Some Iowa bankers believe that foreclosures may continue to increase over the next couple of years as interest rates on adjustable rate mortgages reach their reset terms. Others say it’s a much-needed correction in the market following some “go-go” attitudes among lenders, particularly in the subprime market to borrowers with marginal credit ratings.

“You have to wait a long time for a sheriff’s sale now, so I know that activity is up,” said Bob Miller, president of Polk County Bank. “Part of that might be attributed to the quality of borrowers. We’re seeing some borrowers approved by other institutions that we haven’t been interested in working with.”

In Iowa, subprime loans made up 7.7 percent of outstanding loans at the end of the fourth quarter of 2006, according to data tracked by the Mortgage Bankers Association.

Of those 26,566 subprime loans, 15.5 percent were past due, and nearly 9 percent of them were in foreclosure, with another 3 percent entering foreclosure that quarter. By comparison, 2.8 percent of the 288,617 prime mortgage loans on the books were past due during that period, with 0.83 percent in foreclosure and 0.28 percent entering foreclosure.

Last week, Iowa Attorney General Tom Miller provided testimony to both the U.S. House Financial Services Committee and the Federal Reserve Board, both of which are exploring possible reforms.

“While many in the industry are touting that the market has corrected itself, and thus no further regulations are needed, assuming such a correction is in fact occurring, one must ask at what cost,” Miller told the Federal Reserve Board in prepared testimony. Among the reforms backed by Miller are a federal ban on prepayment penalties, which have been banned in Iowa since 1978, as well as requiring escrow accounts for all subprime loans and significant restrictions on stated-income loans.

Paul Waltz, chief operating officer of First American Bank, said he feels Central Iowa has been relatively fortunate compared with other regions of the country.

“In Polk County, home sales have been pretty strong,” he said. “It seems we’ve escaped a lot of what they’ve seen on the coasts.”

However, the high cost of gasoline and relatively stagnant wages could hit people hard this summer, he said.

“When you factor in utilities, health-care costs and now high gas prices, (consumers) haven’t seen a real increase in income for several years,” he said. “It’s going to be interesting to see how this bears out.”

Like many banks, First American sells the vast majority of its loans to servicers on the secondary market such as Iowa Mortgage Bankers Corp.

Despite the significant uptick in foreclosures, “I don’t think it’s a dire situation that’s going to have a significant impact on the economy,” said Dan Vessely, president of the Iowa Bankers Mortgage Corp. The organization services $1.3 billion in loans for Iowa lenders, with 14,000 loans on its books, but does not handle subprime loans.

“We have not seen a substantial increase in our delinquencies in loans that are generated by our members,” Vessely said.

“I still think foreclosures are more a reflection of the job market and home values than they are of loan products,” he added. “When appreciation [of house prices] leveled off, you had a lot of assumptions on higher values of homes [built into the loans]. And the Federal Reserve has raised rates a total of 17 times, so that’s affecting ARMs. In my opinion, that’s the vast majority of what we’re seeing. It’s cyclical; we’re at the end of a cycle of where these things happen. That’s not to say we don’t have some creative lenders making some exotic loans and that poor guesses weren’t made.”

Despite the fact that subprime has “become a four-letter word,” Vessely noted that Iowa Bankers Mortgage Corp. in January launched an initiative to refer bankers to reputable mortgage companies that handle subprime loans.

“We want to offer a subprime outlet,” Vessely said. “We want to become a home for bankers to refer borrowers to trusted sources.”