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Foreclosures in many military towns are increasing at rates drastically above the national average, according to RealtyTrac’s Q1 2008 U.S. Foreclosure Market Report. Military personnel may have been targeted by unscrupulous mortgages because of credit problems that can sometimes result from the frequent moves required of them. Although it is unknown how many of the foreclosures in these areas are specifically attributable to military personnel, these skyrocketing rates could have an adverse effect on already struggling markets across the country.

Because subprime mortgages offered lower rates and easier terms at the outset, many military families opted for these loans rather than pursuing the government-backed Veterans Administration loans that are specifically intended to assist servicemen and women. Last year the number of people taking out new VA loans totaled 135,000, marking the program’s fourth consecutive annual decline and the lowest it has been in 12 years, according to Bloomberg. Military members and veterans could find themselves facing foreclosure while simultaneously dealing with combat zones or trying to readjust to civilian life.

“All too often, our veterans come home from fighting a war to face another war of keeping their homes. Veterans injured on the battlefield deserve to come home and focus on healing—not on fighting to keep their families in their homes,” House Veterans’ Affairs Committee Chairman Bob Filner (D-Calif.) said in a July 24 statement.

VA mortgages show higher delinquency rates than prime loans
Delinquency rates for veterans are double those of borrowers with prime loans
In the fourth quarter, the number of VA mortgages more than 30 days overdue was 6.49 percent, with 1.54 percent more than 90 days overdue, according to the Mortgage Bankers Association’s National Delinquency Survey. Both of these rates were approximately twice the delinquency rate for borrowers with prime loans.

“We saw this two years ago with payday lenders charging service members [high] interest rates if they missed a payment. It’s the same thing with these subprime loans,” Patrick Campbell, the legislative director for Iraq and Afghanistan Veterans of America (IAVA), said on a FOX Business News broadcast in May. “[They] targeted these people for nice, easy cheap loans and as soon as they missed a payment they’re just going after them.”

Although many military towns have been affected by the mortgage crisis, the highest rates of increase were in Columbia, S.C. and Woodbridge, Va. The number of properties in the foreclosure process jumped by 492 percent in Columbia and 414 percent in Woodbridge compared to the previous year, according to RealtyTrac. Columbia contains Fort Jackson, the largest and most active Initial Entry Training Center in the U.S. Army, which trains 50 percent of all soldiers entering the Army each year. The Marine Corps base Quantico is located in Woodbridge.

The recent Housing and Economic Recovery Act (H.R. 3221) established new protections for military homeowners. Under H.R. 3221, veterans will be entitled to nine months of mortgage protection once they have returned from active duty. Previously, mortgage protection was only offered for 90 days. The loan amount guaranteed by the VA was also temporarily increased. VA loan caps will be between $417,000 and $729,750 until 2009, according to IAVA.

“The current VA home loan program is irrelevant because the loan amount often does not cover today’s home prices and as a result, veterans are forced to turn to the commercial mortgage market, which is risky and volatile. This approved loan increase will allow more veterans to purchase their homes with a funding guarantee from the VA,” Filner said.

Nearby foreclosures can adversely affect the values of other homes in the area. “Each foreclosure of a conventional mortgage within an eighth of a mile (essentially a city block) of a single-family home results a decline in property value between 0.9 and 1.136 percent,” according to a 2005 Woodstock Institute report. With the number of foreclosures rising at such alarming rates, it is likely that the values of all homes in these towns will be adversely affected.

It’s possible that the policy changes approved by Congress may help stave off mounting foreclosures in military towns, but what the ultimate effect will be on these communities remains uncertain. Savvy investors undaunted by the statistics may be able to find homes for very good deals if they are willing to risk of wading into these property markets. But uncertain or inexperienced investors may be wiser to hold back and keep an eye on affected military towns for a while to see where this trend is heading.