Losing The House: Foreclosures On Rise

Since the beginning of 2002, approximately 20,000 homes in metro Atlanta have been advertised for foreclosure, furthering concerns about increased mortgage delinquencies nationwide and "innovative mortgage financing" to those at higher credit risk.

Last year, in comparison, 31,016 new homes were built in a 12-county metro Atlanta area, according to the Greater Atlanta Home Builders Association.

"We've seen a dramatic increase [in foreclosure notices] in the past six or eight months," said Bill Bramlett, managing partner of the Atlanta Foreclosure Report, which tracks legal advertisements of foreclosures in 12 metro counties and Hall County. "They have virtually doubled. Last year we were seeing 1,200 to 1,500 a month. Now it's usually closer to 2,000 plus every month for the last six months."

Georgia law requires foreclosures to be advertised for four consecutive weeks before a house can be reclaimed by a lender.

An analysis of foreclosure notices shows that since January, 20,400 homes, commercial properties and land parcels have been advertised for foreclosure in the 13-county metro Atlanta area. The vast majority of the notices are for residences.

Excluding land filings, there were 2,222 foreclosure notices listed by the Atlanta Foreclosure Report in January; 2,168 in February; 2,482 in March; 2,761 in April; 2,049 in May; 1,822 in June; 2,492 in July; 2,316 in August; and 2,151 for September.

"The September report is actually for the October auction," Bramlett said. "We publish three Tuesdays prior to the auction, which is the first Tuesday of the following month."

The metro Atlanta ZIP codes with the highest numbers of foreclosure notices this year are (in descending order) Lithonia's 30058, Decatur's 30034, Atlanta's 30310, Stone Mountain's 30087, Stone Mountain's 30083, Decatur's 30032, Stone Mountain's 30088, Atlanta's 30349, Atlanta's 30331 and Jonesboro's 30238.

Of the 20,432 foreclosure notices advertised so far this year, 15,982 of them, or 78 percent, are for mortgages under $150,000. National trend

The nation as a whole is experiencing higher mortgage delinquency rates, according to the Mortgage Bankers Association of America in Washington, D.C.

The delinquency rate rose to 4.77 percent in the second quarter from 4.65 percent in the first quarter.

In the second quarter, delinquencies increased for all types of loans, but the increase was less for conventional loans as opposed to Federal Housing Administration and Veterans Administration loans, the association's National Delinquency Survey said.

Mortgage rates are at 40-year lows, bringing many first-time home buyers to the market.

The reason for the delinquency increase is due mainly to the increase in unemployment from the first to second quarter, said association Chief Economist Doug Duncan. In the first quarter, unemployment averaged 5.6 percent, but increased to an average of 5.9 percent in the second quarter, he said. One year ago, in the second quarter of 2001, unemployment averaged 4.5 percent.

"We currently expect delinquencies to remain near their current level for the next few quarters," Duncan said.

Despite the gloomy foreclosure and mortgage delinquency figures, not all economists feel there is a housing bubble, nor that the housing industry is in trouble.

During a Sept. 17 teleconference, Dave Seiders, chief economist for the National Association of Home Builders, and Maury Harris, chief economist for USB Warburg, both discounted a housing "bubble" that is going to burst.

Housing prices may fluctuate because the regional economy is weaker than the overall economy, Harris said. For example, when oil prices go up, home prices in New England go down, but home prices in Texas increase.

Both economists said the national unemployment rate is still at an acceptable level and incomes continue to increase, all of which contributes to the stable housing market.

Likewise, Kennesaw State University economist Roger Tutterow said he does not see an indication of a housing bubble in Atlanta.

"There may be some intown communities and some pockets of the nation, like New Jersey," where home prices are above what the market will bear, but overall home prices in Atlanta are in line, he said. Innovative mortgages

In Georgia, the mortgage delinquency rate in the second quarter, at 5.99 percent, was even higher than nationally, Mortgage Bankers Association statistics show.

That's no surprise to Rick Fritz, chief economist of Federal Home Loan Bank in Atlanta.

One reason for the rising delinquency rates may be the "innovative mortgages" that put people in houses.

Atlanta Foreclosure Report's Bramlett said the high foreclosure numbers in Atlanta are "probably a function of the number of mortgages. More people can qualify because mortgage lenders are relaxing the qualifying standards. So people who couldn't qualify two to three years ago are in homes."

Some of those new homeowners are living paycheck to paycheck, "so if anything happens, they miss a paycheck, they miss a mortgage payment," he said.

Innovative mortgage programs have cropped up in the past five years, Fritz said.

"There are far more alternatives to a conventional mortgage with a 20 percent down payment than there has ever been," he said. "We now have the highest home ownership rate in the United States, but there is a price to that."

In order to develop those innovative programs, mortgages went to homeowners with a higher degree of risk, he said.

"We're seeing programs with 5 percent down, 1 percent down, zero percent down," Fritz said. "And these are not necessarily low-income borrowers who are higher risk. These are middle- and upper-income families that wanted bigger houses."

But more liberal credit terms aren't entirely to blame for increasing foreclosure and mortgage delinquency rates, said Patrick Flood, CEO and chairman of HomeBanc Mortgage Corp., the largest mortgage lender in Atlanta. Unemployment a potential cause

"Over the past 10 years, we've seen a progression of liberal credit terms, not only in housing finance, but every credit availability, from cars, to furniture to credit cards," he said.

The loss of more than 1 million jobs nationally over the past year is the "the single biggest driver in the uptick of delinquencies and foreclosures," Flood said. "We didn't see heightened foreclosures two years ago when unemployment was 4.5 percent. But we're seeing that now that unemployment is just under 6 percent."

Typically, when a homeowner is facing foreclosure, he is already six months behind in mortgage payments, said John Gallagher, a partner in Jenkins & Gallagher, an Atlanta law firm that focuses on real estate.

Most conventional mortgage companies send the six-month delinquent file to their foreclosure department and an attorney sends a demand letter, he said

"That demand letter basically says you have 30 days to bring the mortgage current or face foreclosure," Gallagher said. If within those 30 days, the homeowner wins the lottery "or goes crying to relatives and gets the money," that stops the foreclosure. But most homeowners don't do that.

"A lot of them end up filing bankruptcy," Gallagher said. In his experience, the majority of homes that enter the foreclosure process are foreclosed upon.

Chapter 13 personal bankruptcies have increased in North Georgia for each of the past three years, from 18,548 in 1999 to 21,326 in 2001, according to the U.S. Bankruptcy Court for the Northern District of Georgia, which includes metro Atlanta. The court reported 14,590 Chapter 13 filings from January through August, up 6 percent from the 13,743 filings during the same period of 2001.

Another reason for the increased mortgage delinquency rate is Georgia state law favors a lender's ability to foreclose on a home.

"In other states, such as Florida and California, the law is more favorable to delinquent homeowners," Fritz said. "It gives incentives to California banks, let's say, to work out agreements with homeowners."

Although the Mortgage Bankers Association does not reduce its data to metropolitan statistical areas, Georgia's delinquency rate is reflective of what is going on in Atlanta, Fritz said.

"Atlanta is such a large part of the state's housing industry," he said. "Atlanta is 60 percent or above of the housing market in the state."

He also attributes Georgia's higher mortgage delinquency rate to Atlanta taking a harder hit in the economic downturn.

"All three of [Atlanta's] prime core industries have taken hits — communications, travel or transportation, and convention business," Fritz said. Darkening clouds

The Federal Deposit Insurance Corp. has been issuing cautionary warnings about Atlanta's housing market since the first quarter.

Borrowers with weak credit who are experiencing greater repayment difficulties are elevating the risks faced by mortgage lenders, a recent FDIC report said.

"Further, a slump in residential real estate markets could be especially detrimental to insured institutions with significant exposures to housing construction because projects might not sell at projected asking prices or as quickly as anticipated," the report said.

"If we just take a look at all commercial banks in Atlanta with assets less than $1 billion, mortgage loans have actually dropped to 12.76 percent of total loans," said David Barr, an FDIC spokesman. That figure, which is through the second quarter, is down from 13.85 percent of total loans during the same period a year ago, he said. On the construction side, commercial development loans are only up slightly.

Lenders engaged in financing residential real estate development in markets with an oversupply of housing could be at risk, particularly if several builders overestimate the housing demand, the FDIC report said.

"A construction market with numerous small developers, such as Atlanta, may see amplified swings in construction activity and may experience excess supply during certain periods," the report said.

Atlanta is particularly at risk for a rising imbalance in its housing market, since its housing market is "displaying signs that residential construction activity may not be responding in kind to local economies that have started to contract during this recession," the FDIC said earlier this year.

However, single-family building permits are only up 1.6 percent year-over-year in July "so not as much supply is coming onto the market," Barr said. "I believe construction activity has slowed down."

"There are far more alternatives to a conventional mortgage with a 20 percent down payment than there has ever been," he said.

And that's the whole problem. When people were forced to save that 20% they developed good financial habits before they ever took on a mortgage payment. Now they think nothing of spending every penny they get in wages, and can't deal with a crisis.

I'm missing something. When people see that they're getting into financial trouble and aren't going to be able to make their mortgage payment, why do they let the whole situation go to foreclosure? Why don't they just put the house on the market instead and walk away with some money in their pockets and minimal damage to their credit rating? Maybe I'm being intolerant, maybe I just don't understand, but this makes me sort of wonder if Mr. Jeeves isn't right: the explanation might be not that these people had bad luck and lost a job or something (which could happen to anybody) but that they didn't have the financial smarts to see the train coming and get out of its way.

I agree. The climate that draws the great unwashed into mortgage finance, is also the same climate that entices stable home owners to "move on up" and get the nicer home. The more creative finance is the only way this happens, and when things go south, things really go south.

Leverage works just dandy on the way up, but it also works just as efficiently at destroying you on the way down.

I am looking at buying a home in the Seattle area. The owner wants $309K. I say NFW.
IF I were to pay asking, @ 20% down and 4.5%, I am looking at an annual payment of $20.8K (PITI). If that same house were to be financed with 7% money, that same $20.8K/yr (PITI) would get me $237K, in this "good" housing market. Now, that's a loss of $72K, without factoring in if the economy and housing market take a real dump. That is a loss of the entire down payment, plus $10K. I would also have to add real estate bloodsucker fees on top of that.

Two years ago, a 5/1ARM was 7.5%. It could happen VERY soon, as lawmakers try to "fix" the problem and cause more expenses for lenders, or if the dollar breaks out the Depends.

When interest rates tick up, the housing boom is over. Most of the recent entrants will be very upside down, consumer spending will hit a brick wall, and there will be a flurry of foreclosures, which will only grind down real estate even further. This is to say nothing about the loss of jobs that goes with the loss of consumer spending.

Thank you Alan Greenspan...

Most people that lose their home, do so for three reasons: 1. It will cost them more money to sell it than the amount of money they have available (i.e. they're upside-down) or 2. They are ignorant of the options the have available or 3. Divorce, and they both are either unwilling or unable to be responsible for the payment. Most of the time, they're upside-down and can't sell.

There are 20 counties in metro Atlanta. Each group that has info on metro Atlanta chooses to break it down in different sizes. For example, the Atlanta Regional Comission is home to ten counties, yet the Metropolitan Statistical area is twenty counties.

This article is most likely legitimate.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Losing the house: Foreclosures on rise