Financial Update (Fourth Quarter 2007)

Atlanta Fed Releases DVD on Foreclosure Prevention

Foreclosure PreventionForeclosure is an experience all homeowners wish to avoid, and the Atlanta Fed has produced a new DVD advising homeowners about how to prevent that event.

Featuring interviews with housing experts as well as homeowners who have experienced or narrowly avoided foreclosure, the 17-minute DVD is a service to Georgia homeowners as part of the Fed's mission to serve its communities through financial and economic education.

In the DVD—titled Foreclosure Prevention: Hope for Georgia's Homeowners and available through the Atlanta Fed free of charge—credit counselors, consumer advocates, and legal experts discuss common causes of foreclosure and advise home buyers to educate themselves and to be skeptical of aggressive sales pitches.

Understanding how mortgages work
Such aggressive tactics often are used to sell complex mortgages, which often include adjustable interest rates that increase over time, sometimes dramatically. Some of these complex loans are part of the reason for the surge in foreclosures in recent months, said Kenneth Wade, chief executive officer of NeighborWorks America, a national network of community development and affordable housing organizations.

In Atlanta, half the people who call the Consumer Credit Counseling Service of Greater Atlanta with mortgage difficulties have escalating loan rates, said Susan Hunt, director of the agency's housing program, in the DVD.

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Most of those buyers were not aware of the complexity of getting mortgages, she said. In fact, few homeowners understand complicated real estate finance and virtually none completely understand the mortgage documents they sign, said Frank Alexander, professor at the Emory University School of Law.

Alexander, who specializes in property sales and finance, said homeowners should learn to understand the terms of their loans and to be certain of their monthly expenditures—including not only the mortgage payment but also utilities, taxes and insurance.

Communicate prior to falling behind
Alexander and the other experts in the DVD, which also serves as a resource for those who work with the public about their finances, stressed that homeowners facing potential problems with mortgage payments should contact their lender before they miss a payment. Lenders would generally prefer a repayment arrangement rather than foreclosing, which typically costs them from $30,000 to $40,000, Hunt said. Even after a foreclosure, lenders end up repurchasing the home through auction on the courthouse steps in 80 percent of cases, Alexander said.

Michael Brown, a homeowner who had financial problems but avoided foreclosure, said in the DVD that he talked with his lender and credit counselors. "It was like taking the weight of the world off your shoulders, knowing you're going to save your home," he said.

November 13, 2007