Foreclosures level off after Oct. spike

LAWRENCEVILLE - Home foreclosures in Gwinnett County are leveling off in November after peaking in October.

Professionals at the Impact Group in Duluth say the spike could have been caused by an increase in interest rates charged by adjustable rate mortgages, or ARMs.

In September, lenders foreclosed on 752 home loans. That number soared to 1,022 in October, then leveled off to 755 in November. Those figures are taken from published legal advertisements in the Gwinnett Daily Post indicating properties in default that will be up for auction the following month.

That spike did not occur in October 2006, when foreclosures increased by 176 over September's.

"We are looking at ripples in the industry," said Anthony Mitchell, director of the home ownership center at The Impact Group. "The peak home buying time is April and May. The second reset of an ARM six months later would be October. I think you will see a spike again in October in 2008."

Roger Tutterow, economics professor at Mercer University, said some of that spike is caused by random variations in foreclosures.

"I would caution against reading too much into month by month trends - 1,022 is still a modest number for Gwinnett," Tutterow said. "As ARMs repriced in early 2007, some of those households hung on as a long as they could before throwing in the towel."

During the heyday of the housing boom and up to about two years ago, ARMs were a popular and easy manner for first-time home buyers or those with problematic credit records to purchase a home.

"People thought that housing costs would increase and incomes would continue to rise," Mitchell said.

An ARM is a mortgage loan in which the interest rate on the note starts out at or below the market rate, which is now 6.5 percent, then periodically adjusts based on an index, Mitchell said.

For example, a home buyer might purchase a house using an ARM and start out with a $1,000 payment, depending on the cost of the home and its interest rate. In two or three years, most ARMs reset to a higher interest rate. If that rate goes up an average of 2 or 3 points, it would add from $100 to $300 to the mortgage, Mitchell said.

"If their budgets were not ready for that, then people are in over their heads," Mitchell said. "Some of these folks have at least one equity line they tapped into, so they have an additional loan."

The ARM resets roughly every two or three years, depending on the loan, until it reaches its cap, Mitchell said.

Homeowners in trouble do have resources, if they ask for help early.

The Federal Reserve cut short-term interest rates in the last couple of months and the Federal Housing Authority is enhancing its service offerings to address ARM clients, Mitchell said.

"You don't do anybody any good by foreclosing," Mitchell said. "The banks don't want to take over someone's house and it's not good for the community. Next year there will probably be gaps in municipalities' budgets because of less property taxes coming in."