Georgia Home Loan Trouble: Atlanta Foreclosures Rise

The Atlanta Journal-Constitution reports that bad credit home loans helped fuel the housing boom in Georgia’s biggest city - but now they are feeding fears of a foreclosure epidemic.

In the past quarter, 13.5 percent of the nation’s subprime mortgage loans were in default. The rate was higher in Georgia — 17.4 percent, according to a report by the Mortgage Bankers Association.

Filings for Georgia mortgage foreclosures — the ultimate consequence of default — rose 67 percent in 2006. The state had the nation’s second-highest rate of foreclosure filings, according to RealtyTrac.

Weaknesses in the bad credit mortgage market made headlines last week when the Dow Jones industrial average fell 243 points on news that borrowers were falling behind on payments at the highest rate in years.

Several bad credit home loan lenders have already signaled financial distress.

Subprime loans are made on less favorable terms, at mortgage rates 1-3 points higher than prime rate loans, usually to home buyers with poor credit or few assets who don’t qualify for prime loans.

One outstanding Georgia mortgage loan out of every eight was subprime last quarter, according to the MBA. About 3.9 percent of prime loans in Georgia were past due; among subprime loans, it was 17.4 percent.

The subprime loan problems could have broader implications on the Atlanta housing market when and if the loans move into foreclosure.

Rising foreclosure rates dump more houses on the market, making it harder to sell any house. Home construction and sales are an important part of the economy.

With nearly one in five bad credit mortgage loans defaulting in Georgia, the emerging national turbulence may play differently in Atlanta and the state.

But experts differ on how vulnerable metro Atlanta is.

“The subprime lending is relatively more important in Atlanta than in the rest of the country,” said Mark Vitner, senior economist with Wachovia Securities. “It could have a little more of an impact in Atlanta.”

Still, Vitner and others say Atlanta’s relatively healthy economy could protect the region from serious economic impact. Atlanta has seen steady population growth and strong job creation.

While home prices have climbed, the increases did not hit the double-digit pace of hotter markets. There hasn’t been the “bubble” in the housing market here that worries the industry and economists in other regions.

That could make the region less vulnerable to mortgage woes, said Keith Corbett, executive vice president of the Center for Responsible Lending.

“When you look at the Atlanta area, it’s not as bad as everyone else,” he said.

Continue reading in the Atlanta Journal-Constitution …