Georgia needs mortgage reform

One in eight home loans is past due and on the verge of foreclosure in Georgia. 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.

As foreclosure signs, boarded up windows and overgrown lawns become increasing prevalent, some of our best experts and leaders prefer to sit idly by and debate statistics.

Regardless of a preferred methodology in sizing the problem, unavoidable truths remain: Empty houses are falling into disrepair, homeowners are facing lower property values and families are turning up homeless, scrambling for shelter.

Numerous sources, including the Center for Responsible Lending, Consumer’s Union and Reality Trac — the leading source in foreclosure statistics — report the trend of rising foreclosures will continue.

Realty Trac reported that Georgia ranks seventh in the nation for foreclosures, with 11,521 homes receiving notice of foreclosure in April alone. CRL claims that 41,818 Georgia homes have been foreclosed on since the beginning of 2009.

CRL also states that homes under foreclosure will have a “spillover” affect and depress the value of neighboring properties by an average $1,920 per home. In 2009, 1,850,583 homes will be devalued. By 2014, that number will reach 2,823,007.

And though these projections are not set in stone, arguing methodology is merely a diversion for policy makers and legislators to avoid acting on an issue that spins out of control.

Georgia law allows for a quick foreclosure process. In some cases, delinquent homeowners could lose their home in just over a month. Lawmakers responded to this issue in 2008 with a bill to give borrowers more time and information leading up to a foreclosure. But it offers no relief to new home buyers or Georgians who have already lost their homes.

A coalition of organizations, including the Georgia Family Council, AARP Georgia, the Catholic Archdiocese of Atlanta and Georgia Watch, helped craft and support a reasonable foreclosure and loan origination reform package based largely on reforms in Ohio, North Carolina and Maine.

Some legislators, however, stalled the effort in the final days of the legislative session.

Senate Bill 57 would curb destructive incentives and lending practices, such as kickbacks for mortgage brokers.

Subprime loans are supposed to bridge borrowers with less than perfect credit histories to prime loans with better interest rates. In 2009, one in 12 prime loans in Georgia is overdue, compared to one in three subprime loans.

Key provisions of SB 57 should apply to all subprime loans:

? Ban prepayment penalties. A high-cost loan should be a bridge to better financing, not an anchor to high-interest debt.

? Ban yield spread premiums, otherwise known as kickbacks. When brokers steer borrowers to higher interest rates than they really qualify for, the lender pays them a kickback. YSPs are a perverse incentive for brokers to make loans more expensive than necessary.

? Make mortgage brokers act in the best interest of borrowers.

? Make lenders verify borrowers’ financial ability to repay the loan. Income verification would prevent borrowers from accepting loans they cannot afford.

As banks foreclose on homes at a rate of roughly 40,000 per week, now is the time to address the crux of the financial crisis: reckless lending practices and scant regulation.

Now that lending reform is gaining momentum, Georgia has a unique opportunity to preserve the American dream for this and future generations. Is that dream still worth fighting for?

Beth Malone is the communications coordinator for Georgia Watch, a consumer advocacy organization.