Lawmakers fail Georgian’s dealing with foreclosure

Currently in Georgia, one in eight home loans is past due and on the verge of foreclosure. While the subprime market represents just 13 percent of all outstanding loans in Georgia, subprime foreclosures accounted for 40 percent of the total number of Georgia foreclosures in the first quarter of 2009.

As foreclosure signs, boarded up windows and overgrown lawns become increasing prevalent in communities across the state, some of our best experts and leaders prefer to sit idly by and debate statistics.

Regardless of a preferred methodology in sizing the problem, unavoidable truths remain: empty houses are falling into disrepair, homeowners are facing lower property values and, more importantly, families are turning up homeless, scrambling for shelter.

Numerous sources, including the Center for Responsible Lending (CRL), Consumer’s Union and Reality Trac – the leading source in foreclosure statistics – report the trend of rising foreclosures will continue in the foreseeable future.

Realty Trac reported that Georgia ranks seventh in the nation for foreclosures, with 11,521 homes receiving notice of foreclosure in the month of April alone. CRL claims that 41,818 Georgia homes have been foreclosed on since the beginning of 2009.

CRL also states that homes under foreclosure will have a “spillover” affect and depress the value of neighboring properties by an average $1,920 per home. In 2009, 1,850,583 homes will be devalued. By 2014, that number will reach 2,823,007.

And though these projections are not set in stone, arguing methodology is merely a diversion for policy makers and legislators to avoid acting on an issue that continues spiraling out of control.

Currently, Georgia law allows for a quick foreclosure process. In some cases, delinquent homeowners could lose their home in just over a month. Lawmakers responded to this issue in 2008 with a bill to give borrowers more time and information leading up to a foreclosure. However, it offers no relief to new homebuyers or Georgians who have already lost their homes.

A coalition of organizations, including the Georgia Family Council, AARP Georgia, the Catholic Archdiocese of Atlanta and Georgia Watch, helped craft and support a reasonable foreclosure and loan origination reform package that was largely based on reforms that have already passed in Ohio, North Carolina and Maine.

Some members of the state House of Representatives, however, stalled the effort in the final days of the legislative session and failed to pass any viable foreclosure reform or relief for Georgia homeowners.

Senate Bill 57, sponsored by Sen. Bill Hamrick (R-Carrollton), would make common-sense changes to Georgia’s home loan origination process, to curb destructive incentives and lending practices, such as kickbacks for mortgage brokers.

Subprime loans are supposed to be a bridge for borrowers with less than perfect credit histories to prime loans with better interest rates. So far in 2009, one in 12 prime loans is overdue in the state, as compared to one in three subprime loans.

These key provisions of SB 57 should apply to, at least, all subprime loans:

• Ban prepayment penalties. A high-cost loan should be a bridge to better financing, not an anchor to high-interest debt.
• Ban yield spread premiums (YSPs), otherwise known as kickbacks. When brokers steer borrowers to higher interest rates than they really qualify for, the lender pays them a kickback. YSPs are nothing more than a perverse incentive for brokers to make loans more expensive than necessary.
• Require mortgage brokers to act in the best interest of borrowers.
• Require lenders to verify borrowers’ financial ability to repay the loan. Income verification would prevent borrowers from accepting loans they cannot afford.

As banks foreclose on homes at a rate of approximately 40,000 per week, there could be no better time to address the crux of the financial crisis: reckless lending practices and scant regulation.

Now that lending reform is gaining momentum, Georgia has a unique opportunity to preserve the American dream for this and future generations.