Already suffering from the second-highest foreclosure rate in the nation, metro Atlanta is likely to see even more people lose their homes as a result of predatory lending practices and the popularity of adjustable-rate mortgages.
That's one of the conclusions reached in a new study by the Association of Community Organizations for Reform Now (ACORN), a national advocacy organization that focuses on low-income consumers. Another eye-catching assertion of the study is that upper-income black homebuyers are more than five times as likely to be saddled with high-interest loans than upper-income whites.
Call it institutional racism or redlining; the reality is that even major banks and reputable mortgage lenders typically offer higher rates for homes in such places as South DeKalb, the biggest local boom area for black homebuyers, than they do in Buckhead, says Dana Williams, chairman of ACORN's Georgia chapter.
"In many minority neighborhoods, the interest rates offered are higher than in majority-white neighborhoods," he says. "In many cases, people with sub-prime loans could've qualified for the prime rate."
One of the biggest dangers for average homebuyers, says Emory Law Professor Frank Alexander, are adjustable-rate mortgages, which now account for nearly a quarter of all home loans nationwide. Alexander, an expert on affordable housing, says ARMs, as they're called by lenders, tantalize uneducated consumers with initially low interest rates that can gradually increase until the borrower falls behind in his payments and loses his property. Even worse, he says, are interest-only loans, which only make sense for buyers who plan to sell or refinance soon.
Another problem, says Alexander, has been the temptation of home-equity loans, which allow people to extract what seems like easy money from their houses, but which can prove ruinous if the real-estate market stalls or takes a downturn.
"The mentality has been to leverage your property to the hilt and use that money for living expenses," he says.
But even if it sounds as if many of these woes are brought about by bad financial decisions by homebuyers, Alexander says the situation is made worse by Georgia law.
"Georgia's foreclosure laws are among the friendliest to lenders, and its predatory-lending laws offer minimal protection to borrowers," he says. As a result, Atlanta has become a sort of playground for fly-by-night lenders who entice aspiring homeowners into taking on loans they may not be able to afford. Many of the sub-prime mortgages being offered also come burdened with hidden charges and obscure fees and penalties.
Samuel Ghee, a 49-year-old painting contractor, says he is in danger of losing the Sylvan Hills house he bought last year because of rising interest on his home loan. He says he thought he was taking out a fixed-rate mortgage, but instead ended up with an ARM that included unexpected fees. "I don't think that even if I'd read all the closing papers, I would've caught that," he says. "The loan has blown up on me now."
Ghee is among many mortgage-holders who have turned to ACORN for help. Williams says unscrupulous lenders have become bolder about taking advantage of uninformed borrowers, explaining: "If the laws in Georgia aren't fixed, we'll have more people being put out on the street."
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