Mortgage crisis in the house of the Lord

Church for sale

A sign that is becoming more common as bankers are less willing let churches slide on their mortgages. Image: timsamoff/Flickr/CC BY-ND

Not even the House of God has escaped the economic downturn or the mortgage crisis. A recent report shows that churches are being foreclosed upon in record numbers across the nation.

Church foreclosure rate ‘exponential’

According to a recent report from the CoStar Group, which conducts research on real estate, the number of U.S. church foreclosures is rising “exponentially.”  In 2006, there were only two church foreclosures in the U.S. The figure has grown every year since, and in 2011 it had grown to 138. In the past two years, 270 churches were sold after going into default on their mortgages.

With more than 300,000 churches in the nation, it is not likely that the house of worship will become extinct at anytime soon. But when viewed year-to-year, the growing number of church foreclosures seems downright epidemic.

Cuts across ethnic lines

The foreclosures cut across ethnic and denominational lines. However, the bulk of them occurred in the states that were the most severely hit by the mortgage crisis. Chief among those are Florida, Michigan and California.

Why the numbers are rising

Chris Macke, a senior strategist with CoStar, said:

“Unfortunately, houses of worship are subject to the same laws of economics as secular real estate.”

As home values escalated in the 1990s, churches and homeowners alike took out loans for improvements and to raise real estate values. There was increased debt, of course, but based on then-current trends, it seemed likely that growth would continue and that the expense would pay off in the long run.

Then came the Great Recession and the ensuing economic downturn. Congregation members starting losing their jobs, there was less tithing and fewer donations. Church income decreased by as much as 25 percent in some cases, and mortgage payments often went delinquent as a result.

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Churches take out commercial loans

Churches, however, don’t take out the standard 30-year fixed mortgage that most homeowners rely on. They take out commercial five-year loans that have low interest and require very little outlay over the life of the loan. However, the bulk of the payment is expected at the end in a lump balloon payment.

In the past, those loans were usually automatically refinanced when the balloon became due. Banks have traditionally been slow to act against delinquent churches. Scott Rolfs, managing director of Religious and Education finance at Ziegler Bank, said:

“Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches.”

Banks less willing to carry churches

However, following the mortgage crisis and toughened regulations, lenders have become more reluctant to re-evaluate mortgages. More and more often, they are telling the churches to pay up or face foreclosure proceedings.

May reverse with recovery

As the economy improves, we may see a reverse in the trend. However, in business, once a precedent is made, lenders have traditionally been reluctant to look back. And in a land that reveres the separation of church and state, some may argue that a more-leveled playing field is not exactly unfair.


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