Georgia foreclosures jump 99%; rate is nation's 3rd highes

Homeowners feel pain as climbing adjustable mortgage rates bite back

The Atlanta Journal-Constitution
Published on: 12/06/06

Hundreds of Georgians lost their homes Tuesday.

The houses, taken from debt-laden homeowners, were sold to bidders on courthouse steps statewide.

The increasingly busy monthly auctions show that not all of the residential market is in decline.

Foreclosures are rising.

More than 115,000 properties across the country were in the foreclosure process in October — up 42 percent from the same month a year earlier, according to RealtyTrac, a California company that tracks foreclosures.

Foreclosures in Georgia are up a stunning 99 percent in the past year.

The state now has the nation's third-highest rate of foreclosures: One in every 449 households. In October, that meant 6,895 properties were in the foreclosure process.

Not all changed hands. Some homeowners came up with the needed payments; others couldn't afford the whole debt but lenders agreed to a delay while they worked out a payment plan. Still, hundreds were auctioned.

The taking of homes — generally because the owner hasn't been making mortgage payments — has always been brisk here because state laws are written for speed. Georgia is one of three states in which lenders can foreclose on houses in as few as 37 days.

Foreclosures ramped up in recent months as once-low introductory interest rates on adjustable mortgages edged up, making monthly payments unaffordable for some homeowners.

Qualified borrowers several years ago could get mortgages with rates below 4 percent, but at the end of the starter period, those rates could adjusted skyward by 2 or 3 percentage points. That would add more than $300 a month to a mortgage of $250,000.

"We really haven't had any letup," said Ralph Goldberg, a Decatur attorney whose clients include many distressed homeowners. "We know, toward the end of the month, people are going to be coming in. The Friday and Monday before [monthly] Foreclosure Day are always busy."

A foreclosure dashes a person's dream of home ownership; it also tarnishes a consumer's credit and makes future borrowing more costly.

The danger for the overall economy is that a rising pool of foreclosures will overflow into other segments of an already troubled real estate market.

Most critically, foreclosures add to the number of homes for sale. They offer bargains to buyers, but dampen the prices other sellers might get.

In addition, many of those who lose their homes also are losing the largest investment of their lives, a source of both confidence and cash.

Marginally qualified

The surge of foreclosures is, in some ways, the backwash of the five-year housing wave that began washing out last year.

Homeownership, construction and sales reached unprecedented levels, partly because lenders tried so hard to get people into houses. By standards of the past, many first-time purchasers were marginally qualified, with modest incomes and little in savings.

But with creative mortgage arrangements, the buyers often were able at least to start off paying interest rates dramatically below market levels. They often avoided a down payment entirely. Atlanta has been among the nation's leaders in the percentage of borrowers taking adjustable rate or interest-only mortgages.

"They get qualified at the teaser rate," said attorney William J. Brennan Jr., director of the Home Defense Program Atlanta Legal Aid Society. "Of course, they can't afford to pay when the rate goes up."

Most foreclosures happen on mortgages held less than five years, according to a study last year by Harvard University's Joint Center for Housing Studies.

Goldberg, the Decatur attorney, said an increase in mortgage payments can be crippling.

"There are a lot of people who seem to have mortgages that are astronomically high, and they are just being eaten up," he said. "You look at the money they have, and you look at the mortgage, and you think, 'How did this happen?' "

Professionals hit, too

Lenders have a powerful incentive to find and qualify borrowers — whatever their income or past. The risks are eliminated for lenders that sell the loans to companies that package thousands of loans together. Those firms figure any defaults will be offset by the vast majority of loans that are profitable.

Buyers are willing co-conspirators. Buyers often lose their homes because they have no cushion to absorb unexpected expenses.

"We see people with the same issues over and over," Brennan said. "There's a death in the family, or someone is losing a job, or someone gets sick."

That can mean trouble even for white-collar professionals.

Phillip Newman is a mechanical designer. He bought a home in Lithonia two years ago, obtaining a mortgage that required a monthly payment of $1,260.

Four months later, his company was purchased and his job eliminated.

He was out of work for five months, then found a one-year contract job. When that ended, he scrambled for three months and in July found his current position — where he makes about 25 percent less than he had as a consultant. He fell way behind in his mortgage payments and was scheduled for foreclosure in October. He says he cut spending: He has no cable television, no cellphone, no Internet connection.

He kept talking to the mortgage company and arranged to pay a little more each month to catch up — something that the new job makes possible.

"Hope the car doesn't break down," he said.

One sign of how widespread foreclosures have become is the growing willingness of lenders to negotiate with delinquent homeowners, said Herb Heitman, an Atlanta bankruptcy attorney. "Ten years ago, they never made deals."

Local agency busy

In January, the Consumer Credit Counseling Service of Greater Atlanta assisted 450 people with financial troubles — nearly all of them dealing with the threat of foreclosure.

In October, the agency counseled more than 1,000, said Susan Hunt, director of the housing program.

"I have doubled my staff, and we still haven't met the need," she said.

In some ways, it's the same as always: People lose a paycheck or hit a sudden expense, Hunt said. But it's different, too. Millions of home buyers are just coping with their first big jump in mortgage rates.

"About 40 percent of the people we talk to have a mortgage with an adjustable rate," Hunt said. "And that is true across the board. We have people who live in Alpharetta in great big mansions. Their adjustable rate escalates, too."

By Foreclosure Day, it's too late for Consumer Credit to help, Hunt said.

"Someone will call and say, 'I am on the courthouse steps, and my house is next. What can I do?,' " she said. "And we can't do anything then."

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GETTING HELP

If you are buying a house or are having trouble paying your mortgage, here are some resources:

&bullhud.gov

The U.S. Department of Housing and Urban Development offers advice for home buyers, including sections on home buyers' rights, borrowers' rights and how to avoid predatory lending and loan fraud.

&bullbankrate.com

This Web site provides prevailing rates for various kinds of loans, based on surveys of lenders nationwide.

•Credit counseling

Consumer Credit Counseling Service of Greater Atlanta, 100 Edgewood Ave., Atlanta, offers counseling by phone, online at cccsatl.org, or in person.

For appointments in Atlanta, Decatur, Douglasville, Fayetteville, Gainesville, Marietta, Norcross or Rome, call 404-527-7630.

•Legal assistance

The Atlanta Legal Aid Society, 151 Spring St., Atlanta, 404-524-5811, offers legal help to low-income and elderly residents of Clayton, Cobb, DeKalb, Fulton and Gwinnett counties.

It helps victims of predatory mortgage lending and home equity scams through its Home Defense Program, 404-377-0705, Ext. 236. atlantalegalaid.org

By MICHAEL E. KANELL