Cover Story: Homewreckers

Georgia tops the nation in foreclosures and there’s no relief in sight

American dreams can dissolve into nightmares on the courthouse steps in Fulton County.

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That’s where, on the first Tuesday of each month, thousands of homes are sold at the foreclosure auction. Some properties go for $600 and others for $2 million. All of them are tragic reminders of people who lost their homes because they couldn’t pay.</
A cold rain fell during the Nov. 7 auction. About 150 people lingered around, dressed in jeans and draped in long slickers. Some of them peered over the shoulders of attorneys who mumbled, like so many times before, foreclosure details such as “at public outcry, to the highest bidder for cash” and “all that tract or parcel of land lying and being in ... the 14th District of Fulton County.” Others waited near the Pryor Street curb for firms to call out specific addresses and prices.</
Around 11 a.m. the crowd swarmed.</
A woman dressed in a purple sweatshirt and baseball cap stepped onto the courthouse steps. She represented McCalla Raymer, one of the largest law firms for lenders in the Southeast. People nudged each other to move close to her. They pulled out calculators attached to clipboards and sifted through printed charts that listed homes soon to be foreclosed. A man carrying a blue-and-white oversized umbrella poked a woman in a long, tan trench coat as he snaked through the folks. Two security guards asked people to stop blocking the steps. The crowd shifted to the right a bit and then turned back toward the rep.</
The woman began to rattle off properties up for grabs for $315,000, $252,000 and $384,000.</
“We can’t hear you, speak up,” shouted one man. “This is ridiculous.”</
She continued in a monotonous tone. Real estate investors strained their ears. Some held walkie-talkies or balanced cell phones in the crooks of their necks to transmit hard numbers to colleagues.</
“We’ll get as many houses as we can,” said Tamara Cousins, a representative for Crown Valley Group, a real estate investment company.</
She waited at the bottom of the courthouse steps while two of her associates jotted down info near the McCalla Raymer rep. Crown Valley had six delegates present and they hoped to scoop up 10 properties. Other people shook their heads in dismay, stunned by the spectacle of rabid bidders.</
Absent from the auction were the individuals who stood on the brink of losing their homes.</
Approximately 4,300 properties were up for grabs at the Fulton County auction in November. It was a record month, according to the Atlanta Foreclosure Report, and no signs show the rate will slow down anytime soon. In fact, it’s just the opposite; one in every 195 households in metro Atlanta is foreclosed upon these days — a 41 percent jump from last year. The state currently holds the No. 5 spot on the national list of highest foreclosure rates.</
For years, jobs brought people to Atlanta, spurring intown gentrification and good suburban housing values. The metro area transformed into a hot housing market, and home buyers now will do anything to get into a house. The mortgage industry, in turn, has responded by offering creative financing plans that work for many people but can be disastrous for others.</
The days when people put 10 or 20 percent down and locked in a 30-year, fixed-rate mortgage — where monthly payments stay the same throughout the entire loan — are pretty much over. Lenders have eased restrictions and now tease consumers with no-money-down agreements and dirt-cheap initial payments. Sometimes they even let home buyers, usually with less-than-perfect credit, choose how much they pay each month.</
But many times, such plans leave home buyers with no equity cushion. They often can never afford the house when interest rates go up, or end up paying more than their houses are worth.</
“People are financing today’s payments tomorrow,” says Todd Mark, director of consumer relations at the Consumer Credit Counseling Service of Greater Atlanta. “It’s setting them up for failure.”</
The situation is exacerbated in Georgia because anti-consumer laws make the state’s foreclosure process one of the quickest in the nation — it can be completed in less than two months. Only Tennessee and Texas rival Georgia in foreclosure speediness.</
Unlike states such as Florida and New York, where foreclosures take about a year under the watch of a judge, Georgia allows foreclosures to happen outside of a courtroom. The process makes it easy for lenders to repossess properties when homeowners default on their mortgage payments. All a lender has to do to foreclose is run an ad once a week for a month, send a letter to the homeowner at least 15 days before the foreclosure sale date, and then auction off the property on the county courthouse steps the first Tuesday of each month.</
“Georgia has the most creditor-friendly, anti-consumer foreclosure system in the country,” says Bill Brennan, an Atlanta Legal Aid Society attorney who represents victims of abusive lending. “Mortgage companies love Georgia because they can come here and do tons of lending and if there’s a default they know the house will get taken quickly.”</
In 2003, the Georgia Legislature invited more aggressive lenders to the state by gutting one of the strictest anti-predatory-lending bills in the nation, which then-Gov. Roy Barnes had signed a year earlier. Now, the only way consumers can stave off foreclosure is to file bankruptcy. And that process still doesn’t guarantee the house will be saved.</
“Very few people win when foreclosures occur,” says Frank Alexander, a housing expert and law professor at Emory. “Most of us see rapid foreclosure on the losing end. The only people who really ‘win’ are the people who created the mortgages.”</
It’s about to get worse. The housing market in hot spots such as Houston and San Diego has started to cool and experts say Atlanta’s next in line for a housing slump. Last month, a U.S. Department of Commerce report showed that the national median price of a new home had dropped by the biggest amount in more than 35 years. Though Atlanta’s prices haven’t declined dramatically yet, the Associated Press reported that new orders for Atlanta-based Beazer Homes fell by almost 60 percent this year.

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“It’ll probably be 2008 before we begin to see foreclosures slow down,” Alexander says. “It’s going to get worse before it gets better.”</
Agnes Martin, 76, has lived in her Forest Park home for 20 years. She’s refinanced the property several times, so that she could pay around $300 each month. Then in November 2003, Martin’s father died and she was forced to refinance her home again to cover the costs of her father’s burial. The former hotel maid only collected around $900 from a Social Security check each month, along with $844 in foster-care payments for two children she adopted. So she asked for a fixed-rate mortgage from Fremont Investment & Loan. Instead, the company rolled all her debt into a new, adjustable, $85,0000 mortgage with an interest rate that started at 8.5 percent — more than two points above the average interest rate — and could jump as high as 15 percent. Martin didn’t completely understand how the loan behaved, but signed her name. She didn’t think she had any other options.</
“No one told me it would change,” Martin says.</
Her initial payments totaled $641, which only left her with about $260 for food, transportation and utilities each month. It was tight, but she managed to stay on top of her finances.</
Three years later, the mortgage reset when interest rates rose and Martin’s payment increased to $751. This past summer, it jumped again — this time to $930. She’s now more than six months behind on her mortgage.</
“This loan should’ve never been made to her,” says Adrienne Ashby, an Atlanta Legal Aid lawyer who’s representing Martin. “She could never pay for it on her fixed income.”</
Ashby says Fremont factored Martin’s foster-care assistance check into the income on the loan application. She argues that the company shouldn’t have done that since the adopted children, who stop getting assistance once they turn 18, are already teenagers. That means Martin won’t get that money for the full duration of the loan. In a letter to Fremont, Ashby wrote that there was “irrefutable evidence that this loan was made with the intent to foreclose.”</
Last month, Martin received a notice-of-sale letter from an attorney acting on behalf of Fremont. It informed her that her house would be auctioned off on the courthouse steps on Dec. 5.</
“I’ve been here so long, I have so many memories,” Martin says. “It makes me sick every time I think about what might happen.”</
There’s a golden rule when it comes to buying a house: Don’t purchase a property that’s more than three times your gross income.</
Lenders are supposed to help consumers stick to that rule by evaluating a home buyer’s history. They verify incomes, examine credit scores and chart out payments over time to make sure a person can pay. Then they present loan options to home buyers and advise them on how each one behaves. The safest bet tends to be a fixed-rate, 30-year mortgage that keeps a consumer’s payments relatively steady.

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But most of those standards have been thrown out the window.</
In the past decade, a revolution in mortgage products has become one of the biggest contributors to the high number of foreclosures. The mortgage industry has started to market specialty loans to the masses much like credit card companies took on riskier users, such as college students, in the 1980s. Mortgage companies have offered middle-class Americans interest-only loans, where home buyers don’t have to pay the principal until several years have passed, or no-documentation loans, where consumers don’t have to prove their eligibility. Virtually every lender also offers 100 percent financing and they estimate that probably 50 percent of home buyers now put 10 percent or less down on homes.</
“The first barrier of up-front money is removed with these products,” Mark, of the credit counseling service, says. “But if you don’t have the discipline to stay on top of your loan, you back-load your payoff.”</
One of the most popular products out there is an adjustable-rate mortgage. It allows homeowners to initially pay specific amounts at a lower-than-average interest rate. After an agreed-upon period of time, the interest is adjusted according to an index. Some ARMs, called option ARMs, let consumers choose how much they will pay each month, just like credit card companies allow users to pay monthly minimums. These mortgages often leave homeowners with no equity and actually cause them to owe more than the house is worth as principal continues to accrue.</
Many people opted for ARMs between 2001 and 2004 when mortgage rates were low and it became cheaper to borrow money long-term than short-term. Lenders saw the surge in buying and refinancing and convinced consumers to try these new products. But few individuals realized that after the initial period, interest rates could increase as much as four percentage points in two years and cause payments to soar. Martin’s payments, for example, jumped $300 in a couple months.</
“There’s a lack of fiscal understanding about how much we’re able to pay,” says Steve Epstein, a mortgage broker in Dunwoody. “The initial monthly payment is all people think about.”</
All of these schemes, lenders say, are creative and innovative ways to get people into homes. They argue that the market breeds competition and to stay afloat, companies must offer various loan products.</
“Consumer greed drives the forces,” Epstein says. “We want as much as we can get.”</
Lenders haven’t exactly discouraged that mind-set. In fact, they’ve often been pressured to look at the value of the house — and meet the consumer’s greed — instead of analyzing the borrower’s ability to pay.</
In the 1960s, companies started to bundle mortgages and sell them off to investors in the form of securities. This process generated a revolving flow of money for the mortgage industry and allowed lenders to originate more loans. It’s a direct reason why there’s now approximately a 70 percent home-ownership rate in the country.</
Today, however, companies are creating other ways to make more money. Many investors that buy mortgage bundles have encouraged lenders, Brennan says, to look at the value of the house instead of the borrower’s history. That has caused foreclosures to run off the map.</
“The lender can’t control this,” Epstein says. “The market does.”</
On a rainy afternoon in mid-November, Agnes Martin makes spaghetti and watches TV. She’s trying to keep her mind off the foreclosure that still hasn’t been resolved. A couple months ago, Atlanta Legal Aid helped Martin apply for a reverse mortgage, which is a U.S. Department of Housing and Urban Development loan for senior citizens. It allows seniors to borrow against the equity in their home and make no payments during their lifetime. Once the borrower dies or permanently moves from the home, the loan is due. In Martin’s situation, a reverse mortgage would pay about $52,000 to Fremont. But the company refused the offer.</
“They said that because the house had sufficient equity they wouldn’t accept a short payoff,” Ashby says.</
Instead, Fremont said it would allow Martin to pay the initial $641 each month. Ashby says that still won’t work because Martin’s income is so low.</
Martin isn’t the only person in a wrangle with Fremont. Legal Aid has identified four other cases in metro Atlanta that have led them to believe that the company fully knew these individuals would never be able to afford their loans. A recent issue of Inside Banking & Lending, an industry newsletter, revealed that Fremont tops the charts in high-rate lending and sub-prime lending.

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An industry in itself, sub-prime lenders offer loans to people who have less-than-perfect credit. To make the risk worth it, lenders exploit the lack of good credit rating by charging sub-prime borrowers hefty interest and up-front fees — something that’s impossible to pay for on a fixed income.</
“[Fremont] knows these folks won’t be able to pay if they’re on fixed incomes,” says state Sen. Vincent Fort, D-Atlanta, who has stepped in and asked Fremont to stop the foreclosures of these five homeowners. “This is an abuse unto itself.”</
Now, with only a few weeks left before the foreclosure auction, Ashby is trying to help Martin apply for bankruptcy. Though it’s not the ideal situation, it might be the only way Martin can delay foreclosure.</
“While I’m here, while I’m on this Earth, I just want to be comfortable,” Martin says. “I just want to stay in my house.”</
The addresses up for sale on the courthouse steps on Nov. 7 don’t show the plight of people’s soured dreams. The long lists of properties don’t tell the haunting stories of how people took on multiple jobs or begged friends for money to help them try to save their homes. And the people out for a steal on the courthouse steps don’t hear the foreclosure tales.</
But the tragedies are recorded in failed dreams of former homeowners. When they have nowhere else to turn, they unburden themselves to lawyers and credit counselors such as Brennan and Mark. One story still sticks in Mark’s mind.</
Four years ago, a 19-year-old Georgia Tech student came to the credit counseling service when she knew she was on the verge of foreclosure. She was a hard worker and a savvy young woman. She’d already set aside money to help pay for a home once she graduated.</
“She was an amazing saver,” Mark recalls. “She really had her life together.”</
But her plan soon dissolved.</
During her second year in college, she found out her parents had been cheating on each other. One had developed AIDS and passed it on to the other. Her father fell ill first, and died shortly before her mother was hospitalized. All the family’s money went to pay medical bills.</
The young woman dropped out of school and went to work as a radiology technician at Grady Memorial Hospital. Her first concern was to make sure the mortgage was paid. She knew the family couldn’t lose the house. It was the only stability in her and her two younger siblings’ lives.</
Soon, her mother passed away and the state offered to become custodian of her siblings. She declined the state’s offer, knowing foster care would be too traumatic for her brother and sister, and became their guardian.</
Things settled down until Grady went through a round of layoffs and the young woman found herself unemployed. For nine months, she worked odd jobs but couldn’t rake in a steady income to pay the mortgage. The bills racked up. She knew the house was going to go.</
“All that mattered to her was keeping the family together in that house,” Mark says.</
At that critical point, the credit counseling service helped her work with the lender to get her payments back on track. A few months later, she was rehired at Grady and saved her home.</
Thousands of other people aren’t that lucky.</
The rain started to fall harder as the auction continued. By 11:30, a couple of investors had already nabbed several properties. They smiled and casually chatted. They didn’t care about the details of the homes or the struggles that evicted tenants and homeowners had tried to stave off.</
“We got a great deal on that one,” one investor bragged to his colleague. “Let’s get a couple more and call it a day.”