Subprime Lending Is Top Factor in Atlanta Foreclosures Homes
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Subprime lending has been the major reason for large numbers of foreclosures homes in Atlanta neighborhoods, according to a study of foreclosures and mortgage lending in 13 counties in Georgia by The Atlanta Journal-Constitution.
AJC found that the prevalence of subprime loans indicated which neighborhoods in Atlanta had the biggest number of foreclosures homes. In 100 communities studied, at least one in ten mortgage loans defaulted last year. In communities with the highest number of foreclosures homes, 50 percent of recent mortgage loans were subprime loans.
AJC studied other possible reasons for foreclosures and probable predictors of foreclosure patterns, such as home value, race and income, but the subprime lending factor overwhelmed the other factors.
Mortgage lenders enticed borrowers to obtain subprime loans by offering them very low initial monthly payments and by promising them that they could always refinance after several years to prevent the adjustment of rates.
Dan Immergluck, a professor at Georgia Tech and a nationally recognized analyst of foreclosure patterns and subprime lending, said that in the past years, subprime money was courting the borrowers and not vice versa.
He explained that subprime investors and borrowers depended too much on the expectation that home prices would continue to soar and that lenders ignored the fundamental rule of lending, which is to ensure that borrowers could afford to pay the loans.
An AJC study of foreclosure data and federal mortgage lending gathered by Equity Depot Inc. also supported AJC’s subprime lending contention. In a study of Atlanta census tracts, subprime lending has been the factor in 70 percent of differences in the pace of foreclosures among the census tracts.
The other key reasons for large numbers of foreclosures homes in neighborhoods are high number of second mortgages, high number of investor-owned houses and high number of households whose income go mostly to monthly mortgage payments.
The AJC analysis also found that race by itself did not cause large numbers of foreclosures homes in minority neighborhoods. It reported that minority neighborhoods had high foreclosure rates because most of the residents took out subprime loans.
Among blacks in Atlanta who took out mortgage loans starting 2004 to 2007, 42 percent were given subprime loans. In comparison, 16 percent of white borrowers took out subprime loans.
To prevent subprime lending problems in the future that could lead to another wave of foreclosures homes, Georgia Tech professor Immergluck said that mortgage lenders should retain part ownership in mortgages so they will be forced to arrange only home loans that have great chances of getting repaid.
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