Guest Editorial -- Why Rural Homeowners Suffer More

Why Rural Homeowners Suffer More from Housing Mess: While most publicity surrounding the current mortgage foreclosure crisis has centered on the woes of Wall Street and urban dwellers, homeowners in rural America are taking a major hit due to the economic realities of rural communities.

As the number of adjustable-rate mortgages peak this summer and interest rates are reset, more homeowners will find that their monthly payments exceed their ability to pay. When that happens, rural residents will have fewer options than their city brethren.

A recent study cited by the Des Moines Register found that rural borrowers had an average income of $56,000, compared to $66,000 for urban borrowers. Lenders see lower incomes as higher risk and thereby increase their loan rates. Appraisers have a harder time valuing homes in rural areas where fewer homes sell and sales are far apart. Homes can thereby swing in value from an initial loan to refinancing, and can leave borrowers owing more on their loan than their home is worth in a declining market.

Even big lenders in nearby cities often raise the interest rates on rural, inexpensive homes to cover their costs and make their profit. And when rural borrowers get into trouble, they have fewer options among lenders to refinance and fewer choices if they’re forced to sell. Of course, even a few foreclosures can have a huge impact on a small town, according to John Baker, an attorney with Iowa Concern, a hotline for financial and legal assistance. “The value of every property in the town drops dramatically,” he says, because vacant houses deteriorate in value “and it has a cascading effect.”

The newspaper’s study found that 27% of rural loans had higher interest rates associated with sub-prime mortgages, compared to 19% of urban loans. The Iowa Mediation Service operates a hotline for people struggling to pay their mortgages. “What I was struck by … was how many little towns have more than one complaint,” said director Mike Thompson. About half of all complaints came from rural areas even though statistics show more than twice as many loans exist in urban areas. “I think you’re going to see a lot of rural people with the same problems,” he said. By Keith C. Dinsmore. Mr. Dinsmore is a journalist and also former editor of a chain of 22 weekly newspaper in Iowa and Missouri.