Financial Update (Fourth Quarter 2008)

Atlanta Fed Explores Southeast's Foreclosure Plight

foreclosed homes graphic Like many housing markets across the United States, the Southeast's housing market—once one of the most robust components of the region's economy—has slowed dramatically. Rising foreclosure rates helped put a human face on this economic problem, and the Atlanta Fed recently examined the effects of foreclosures in the third quarter issue of its EconSouth magazine.

A once-flourishing neighborhood devastated
Atlanta's Pittsburgh neighborhood provides one example of foreclosure's effects. An intown enclave that had been enjoying rapid gentrification and house price appreciation, Pittsburgh began falling prey to tumbling house prices and rising foreclosure rates in 2007. Today, the neighborhood is dotted with overgrown lawns, boarded-up windows, and for sale signs. According to the report in EconSouth, this scenario repeats itself in many communities around the region.

Another example is Florida, which has been clouded with foreclosures. Below the national foreclosure average just three years ago, the state had the highest foreclosure rate in the Southeast in 2007, according to the Mortgage Bankers Association. And the rate has continued to climb in 2008. According to FirstAmerican CoreLogic's measure of home loan performance, of all subprime loans in the state, 23 percent were in foreclosure in September 2008.

EconSouth foreclosure feature
Atlanta Fed foreclosure resources
Audio icon Podcast on South Florida foreclosures (MP3 9:12)
Maps of nonprime U.S. mortgage conditionsoff-site image

Exploring causes, effects, and resources
While mortgage fraud and predatory lending have played a role in the Southeast's foreclosure rate, EconSouth spoke with Atlanta Fed research economist Scott Frame, who pointed to what is, for him, a more significant dynamic: the decline in house prices. He said the homeowners who are underwater—who owe more on their mortgage than they could sell their home for—are the ones at greatest risk of foreclosure. Since so many neighborhoods throughout the region, and indeed the country, are experiencing this negative equity phenomenon, the foreclosure risk is widespread.

The EconSouth report provides a vantage point on the crisis from the perspective of the Consumer Credit Counseling Service (CCCS) of Greater Atlanta. According to Suzanne Boas, the agency's president, almost as many people—about 30,000—approached CCCS for housing counseling sessions in the first half of 2008 as in all of 2007.

Businesses also feel the pinch
The repercussions of the wave of foreclosure have also posed challenges to a wide array of industries. EconSouth's report shows that the region's banking industry, which was heavily invested in the construction industry, and real estate developers are among the businesses hit hardest by rising foreclosures.

Resources for affected homeowners
The Atlanta Fed has made available resources and information for homeowners affected by foreclosure. As Ana Cruz-Taura, the Atlanta Fed's Miami Branch community development director, said in a recent EconSouth podcast, "We've worked very closely with our community, local government, and lender partners to develop extensive outreach and education efforts to reach homeowners that are in distress and help them assess their financial situation and identify and evaluate the alternatives available to them. The primary goal of these efforts has been to mitigate foreclosure by allowing lenders to reach borrowers, request current financial information from them, and then look for ways to keep the family in the home by modifying or refinancing the existing problem loan."

The Atlanta Fed has also introduced its online Foreclosure Resource Center, which provides information to homeowners requiring information about options available to them. "This site provides a number of useful, informative links on foreclosure-related topics and, more importantly, provides information on local contacts throughout the district and outreach events that individuals can attend locally," Cruz-Taura said.

November 25, 2008