Rate of increase of mortgage defaults leads metro area

[Editor’s note: This is the first in a summer-long series about the foreclosure market in Fayette County.]

It could be one of the best-kept secrets in the county. As $600,000 homes continue to emerge from the county’s red clay, the foreclosure rate increase in 2007 is the highest in the Atlanta region.

The Atlanta Regional Commission presented a regional snapshot of foreclosures in the region to the government leaders in the 10-county region last week. According to equitdepot.net, Fayette County’s foreclosure’s increased 36.1 percent from April, 2006 to April, 2007. The total number of foreclosures rose from 194 to 264 for the period, and while the number is small compared to other counties, it’s still significant, said ARC research division chief Mike Alexander.

“Any uptick is significant,” Alexander said.

One of the main culprits in the increase in foreclosures is sub-prime loans.

According to mtgprofessor.com, a sub-prime lender is one who lends to borrowers who do not qualify for loans from mainstream lenders. Some are independent, but increasingly they are affiliates of mainstream lenders operating under different names.

The website states that sub-prime lenders seldom if ever identify themselves as such. The only clear giveaway is their prices, which are uniformly higher than those quoted by mainstream lenders. Sub-prime lenders base their rates and fees on the same factors as prime lenders. For example, rates are higher the lower the credit score and the smaller the down-payment.

However, the entire structure of rates and fees is higher at sub-prime lenders to cover the greater risk and higher costs of sub-prime lending, according to the website.

A higher percentage of sub-prime than of prime loans go into default. Sub-prime lending costs are also higher because more applications are rejected and marketing costs are higher.

Nearly 16 percent of Fayette’s foreclosures result from sub-prime lenders, which ranks the county 198th nationally.

The Atlanta region has two of the top four counties in the nation with foreclosures coming from sub-prime lenders. Clayton County has 38.2 percent which ranks second nationally and Henry County has 34.1 percent falling in the sub-prime category.

The Center for Responsible Lending, which is a resource for predatory lending, paints a bleak picture for residents with sub-prime mortgages. The Center’s analysis of sub-prime lending is that nearly 1 million residents will lose their homes because of the loans.

“We estimate that 15.6 percent of all sub-prime loans originated since 1998 either have ended or will end in foreclosure and the loss of homeownership. These statistics include homeowners who bought their homes with prime loans, but have lost or will lose their homes through abusive sub-prime refinance loans.”

Since 2000, Fayette’s foreclosures have increased from 295 to 684 in 2006 for a 131.9 percent increase.

One of Alexander’s main concerns is that we may not have seen the bottom of this trend.

“We may be looking at another wave of foreclosures as more mortgage rates change,” he said.

Another southside county leads the region in percentage increase of foreclosures for the six-year period. Henry County saw the number of foreclosures jump from 549 in 2000 to 2,344 in 2006 for a 327 percent increase.

“The effect can be quite dramatic in subdivisions where a number of houses are in foreclosure,” Alexander said.

In Gwinnett County, a Quality of Life Unit has been created by the police department to help deal with run-down conditions that many foreclosed homes exhibit.

“We have all seen the trash strewn across the yard, the junk vehicles parked in the yard and in the street, high grass and weeds, houses with rotted boards hanging off, dogs roaming the streets, and the list goes on and on. These are the kinds of issues that the Quality of Life Unit was created to deal with,” reads the police department’s website.

The website continues, “The driving philosophy behind the unit is that, ‘Disorder and decay breed crime.’ Neighborhoods are chosen for revitalization based on high crime statistics and the fact that it is starting to look run down.”

ARC first started noticing the high number of foreclosures in the last few years, and created the regional snapshot to provide the information to local governments.

“This is a trend that we hope changes,” said Alexander.