Georgia ranks third in late mortgage payments

More Georgia homeowners are falling behind on their mortgage payments in another ominous sign the housing market pain will persist.

The state now ranks third for loan delinquencies, behind only Mississippi and Michigan, according to new numbers from the Mortgage Bankers Association. Last year at this time, Georgia ranked fifth.

The delinquency rate rose to 8.06 percent for the second quarter, an increase of 1.14 percent compared with the second quarter of last year. The actual number of late loans in Georgia jumped from 128,838 in the second quarter of 2007 to 185,591 this year — a difference of 56,753, according to the MBA.

Delinquencies increased 0.7 percent compared with the first quarter.

The 8.06 percent figure is the second highest in Georgia since the MBA began tracking the number in 1979. Only the last quarter of 2007 was worse — 8.37 percent.

“We are seeing something that is different from past downturns,” said Dorsey Farr, a principal at French Wolf and Farr, an Atlanta-based investment adviser. “It leaves you a little bit puzzled.”

The slumping overall economy is likely boosting the delinquency number, housing market experts say.

Georgia’s unemployment rate for July was 6.2 percent, the highest it’s been since March 1993. Last year during this period, unemployment was 4.4 percent.

What’s unrecorded is underemployment, where people are working fewer hours and earning less and struggling to make loan payments, said Jeffrey Humphreys, director of the University of Georgia’s Selig Center for Economic Growth.

“The underemployment problem is actually more severe than the unemployment problem,” Humphreys said. “This wealth destruction is taking place among middle- and lower-income households rather than higher-income households.”

Atlanta’s population growth and abundant open land fueled a booming housing industry, and people in those jobs are particularly susceptible to layoffs and reduced hours, he added.

The percentage of riskier subprime and FHA borrowers is higher in Georgia than in the nation as a whole — 24 percent versus 19 percent, the MBA says.

Rick Floyd, former president of the Mortgage Bankers Association of Georgia, said borrowers who received 100 percent financing find “it’s easy to walk away” when their loan payments exceed what their homes are worth in a depressed market.

A product popular in metro Atlanta has been the piggyback loan, where the borrower takes out more than one loan from different lenders and makes a small down payment, Farr said. Piggyback borrowers are “more at risk if prices fall and the economy weakens,” he said.

Humphreys said Georgia is “a young state with young heads of households” who are more prone to fall behind on their mortgages. Florida and Nevada have experienced bigger home-price declines, but they rank lower for delinquencies in part because they have so many retirees, he said.

The delinquency rate does not include homes that have gone into foreclosure. Georgia ranks No. 10 for foreclosure proceedings, the MBA says.

“I’m not looking for this housing recession to run its course until the end of the fourth quarter or possibly the first quarter of ‘09,” Humphreys said. “It’s the worst in my lifetime. It’s probably the worst housing recession since the Great Depression.”