By Jeannine Malone
One in eight home loans is past due and on the verge of foreclosure in Georgia. Empty houses are falling into disrepair, homeowners are facing lower property values and families are turning up homeless, scrambling for shelter.
Foreclosures have a“spillover” affect, causing the value of neighboring properties to depress. The average loss to neighboring homeowners is $1,920 per home. In 2009, 1,850,583 homes will be devalued and by 2014, that number will reach 2,823,007.
Georgia Watch member Pat Edwards knows what devastating effect foreclosures have on neighboring property values. She’s seen her home’s value fall 30 percent in the last two years. Despite doing everything right, including purchasing her home without a mortgage, she can really feel and see the effects of the housing crisis.
Pat worked for the State Public Health Department and was able to grow an impressive nest egg by saving money and making prudent investments in real estate. Pat and her husband would purchase a house in need of work and use their nights and weekends to do the all the repairs. They would purchase just one home at a time, using a traditional loan with a down payment from their savings and then live in the home as they improved it.
Once the repairs were done, they would wait for the right buyer and sell it for a profit. Each sale increased their savings which would then be reinvested in another home.
Pat and her husband did this several times over the years and by the time Pat retired they had saved enough cash to purchase their retirement home outright. The home they chose for retirement was a brick ranch in a small subdivision outside of Statham, GA. The home was newly built, which meant Pat could relax into retirement without having to tackle another fixer-upper. The fact that the home was new construction and a single story meant maintenance and energy costs would be lower, allowing Pat freedom from worry about escalating energy costs now that she and her husband were living on a fixed income.
The small subdivision where Pat found her home has two streets, 36 homes and is on a rural road just outside historic Statham. In 2004, house prices in the subdivision averaged $140,000 and attracted an ethnically diverse mix of working class families, retirees and professionals.
In early 2008, Pat began to hear rumors that some neighbors were falling behind on their mortgages. One by one families in the neighborhood disappeared and, all told, 6 homes were foreclosed upon or subject to short sales, meaning a home is sold for a very low cost, just before the bank declares foreclosure.
Five of the foreclosures were on the same street. Private investment bankers and out of state banks bought most of these homes, hoping to cash in.
Unfortunately, as it turns out, out-of-state investment bankers don’t make great neighbors. Many of the homes they own have fallen into disrepair as no one is there to monitor their state. Others have turned into rental properties that are constantly being moved in and out of, with little oversight from an out-of-town, corporate landlord.
Many of Pat’s neighbors have tried to sell their homes as a result of the depreciating quality of property. However, homeowners who owe more on their mortgage than their house is actually worth are left with little choice but to stay. Pat says one neighbor has been trying to sell their home the last two years. The homeowner can’t get close to what they still owe since a house up the street sold for $88,000 after being foreclosed on.
Unfortunately for Pat and her neighbors things may still get worse:
• The Center for Responsible Lending and Consumer’s Union report that foreclosures in Georgia will continue to rise until 2012.
Now, as the result of a market that isn’t going to repair itself for quite some time, Pat is left with a hard choice. She can stick it out, hope things change and risk even more depreciation, or sell now and take a devastating hit to the cash investment she made in the house.
Even with tough choices looming, Pat remains optimistic and knows she and knows she and her husband are actually quite lucky.
“Our CPA and some friends told us we should invest in the stock marker rather than a home. Then we would really be in dreadful shape. We could have lost all the money and have no where to live.”
How could things be different? The leading factor for foreclosure is homeowners defaulting on subprime loans. 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. Georgia Watch believes more stringent home loan lending practices will help.
Georgia Watch is supporting SB 57, which would take measures to prevent another housing crisis and bar irresponsible lending practices. SB 57 would strengthen income verifications requirements, stop broker kick backs for higher interest loans and ban prepayments penalties.
If you would like to take part in pushing for these changes please call us at 404-525-1085. To share your story, contact Jeannine Malone at (404) 525 1085.