Closed doors
Loan defaults at highest level in years

LAWRENCEVILLE - Amira Simic, 24, realized the American dream when she and her husband bought a house four years ago in Lawrenceville's Saddle Shoals subdivision.

Simic and her parents refugeed in 2000 from the ruins of Bosnia, when the nation still bore the scars of war. The young couple was proud to bring her parents to live with them in a home of their own.

Now the Simic family is trying to sell its house before it goes into foreclosure.

"We bought this house one day, and the next day I found out I was pregnant," Simic said.

With an 8 percent interest rate and only one family member working to support five people, their payments are high enough. Now that the home's adjustable rate mortgage is set to reprice to 11 percent this winter, the Simics know it's time to bail.

Many other Gwinnett County homeowners are in the same situation.

Gwinnett County broke its record this month for the highest number of foreclosures, going back to 2002 when the Gwinnett Daily Post began tracking the number.

The Post's legals department recorded 1,108 home foreclosures in January, sent for publication from various foreclosure attorneys in the area. The previous record stood at 1,022, set in October 2007.

There were 684 home foreclosures in January 2007.

Professionals place much of the blame on the recent repricing of adjustable rate mortgages and the popularity of interest-only loans.

Foreclosures can be found in every subdivision in Gwinnett County and in every price range, said Lin Stadler-Perry, real estate agent for Century 21 All Atlanta. Saddle Shoals subdivision, which holds about 160 homes with average prices in the low- to mid-$100,000s, has seen more than its share of foreclosures, she said.

Carl Carson, a nine-year resident, has watched the subdivision change since the foreclosure rate vamped up about two years ago.

"It's turning into a renter neighborhood," Carson said of the community populated heavily with Hispanic and Bosnian residents. "Lawrenceville monitors the yards, so they're not a problem, but graffiti is. We clean up graffiti left and right."

The high number of foreclosures creates an economic roller coaster that causes a financial boon for some businesses while others work through a sluggish time.

Mike Domain, a real estate agent for Keller-Williams Realty in Snellville, said 2007 was a better year for his business than 2006.

"It has been a good market for me," Domain said. "It has not hurt me in my annual income, but I lost a lot of what I would consider sales in a regular market."

David Lawler, a closing attorney in Dacula, said the market has negatively affected his business significantly.

"Foreclosures have softened the sales prices of most surrounding properties, and you would think you would see investors snapping them up, but we haven't," Lawler said. "There's a lot of trepidation in the market. People are scared to buy a house that might have $10,000 less equity in six months. When banks do foreclosures, they tend to use the large megafirms. An agent might direct a buyer to me, but they are handcuffed to some of those larger firms. For a small business like me, it can be crippling."

Friday's interest rate stood at 5.375 percent for a 30-year, fixed-rate loan for a borrower with sparkling credit and good debt to earnings ratios, according to Kendall Knight, assistant vice president, SunTrust mortgage.

"The feds are making progressive strides to take an active role in turning it around by lowering interest rates, but I think they are stimulating the refinance market," said Lawler.

One man's foreclosure is another man's treasure

While economists forecast a gloomy economic picture through 2009, due to the high foreclosure rate, investors call the market a gold mine.

Lisa Bennett of Dacula hopes to increase her wealth through buying and reselling foreclosed properties. A mortgage professional for more than six years, Bennett has yet to purchase a foreclosure although she has been working the market since September.

"It is very lucrative for investors, but in some banks the foreclosure rate is so extreme it takes a lot of work and time to get to the right person and make a deal," Bennett said.

Some investors show up at the courthouse steps the first Tuesday of each month when foreclosed properties are auctioned. Instead, Bennett works with short sales, in which she would buy the property from the bank prior to the foreclosure date.

"The owners have a foreclosure date, and most are upside down in their loan," Bennett said. "I would buy it for what's left on the loan or negotiate for less than what's left on the loan and have the bank give the homeowner a deficiency note for the remainder of the loan not paid. I try to negotiate waiving the deficiency, and most banks are willing to do that. But you want to have a buyer in place before you close the sale."

Can Congress help curb future foreclosures?

Four major bills are pending in Congress that target predatory lending, strengthen Fannie Mae and Freddie Mac and give FHA more flexibility to help struggling home owners refinance their mortgages.

Sen. Johnny Isakson, R-Ga., who sold houses for 33 years before entering politics, recently cautioned Congress against overreacting.

"I do not think we need to have an overreaction to what is obviously a problem," Isakson said. "Instead, what we need to do is try to perfect the process so that we can continue to show Americans a new way home but have a loan that responds to those people's needs. Those needs are better documentation, better appraisals and certifications, making sure there is equity in the investment and making sure they understand the responsibilities of that home ownership."

Government should stay out of it, said Govind Hariharan, chair of Kennesaw State University's economics, finance and quantitative analysis department in the Coles College of Business.

"The market has to clean out," Hariharan said. "It will be tough for a lot of people. If government tries to intervene, it will come out of taxes. We have to bite the bullet."

Rentals expected to increase

Homeowners moved from their foreclosed properties will cause a boom in the rental market, predicted Frank Norton Jr., president of the Norton Agency in Gainesville.

"For every 200 foreclosures, 150 former owners will rent," Norton said. "Fifty will move in with friends or family until they get kicked out, then they will re-enter the rental market."

The Simics will join that exodus.

"We will look for a cheap apartment or a basement," she said.

With two sick parents, a toddler and a high mortgage payment, the Simics have cut expenses to the bone. A fresh coat of paint makes the living room pop, but it holds only a few basic furniture items.

"I must have a phone because I have a baby," Simic said. "Sometimes our payments are late, but I still pay. We pay the monthly bills, but there's not enough left over for food and I need the diapers. The house has been for sale since November and no one has come."

SideBar: Tips to avoid foreclosure

1. Don't go into denial about the situation. Ask for help as soon as you know you are behind in payments, said Anthony Mitchell, spokesman for the Impact Group of Duluth.

2. Know your personal business:

What are your current assets, wages, 401(k) and savings?

Can you take on a part-time job, sell some possessions, move in a roommate?

List all expenses including credit card debt, utilities, child care, health care, etc.

3. Know your mortgage:

Does your payment include escrows for insurance and taxes?

Is there a prepayment penalty?

When does the interest rate adjust and by how much?

How much is the loan compared to the value of the property?

4. Call your mortgage company and ask for the loss mitigation department (not the collections department).

Ask if they will restructure the loan. Some won't talk to you until you have missed a payment. Document why you have missed the payments and your financial situation. Write down the dates and times of your calls and the names of the representatives you speak with.

5. "Foreclosure assistance" fraud is at an all time high. Get a second opinion before signing anything.

Source: The Impact Group