Foreclosures Follow Sub-prime Bust — Part II

Marina Peed, president of The Impact Group, a nonprofit housing counseling service in Atlanta, discusses the impact on residents of local communities.

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CHERYL CORLEY, host:

We're talking about the collapsing subprime mortgage market and the efforts to revive it. And we turn now to a woman who deals face-to-face with the people who count on the risky loans to purchase a home. Marina Peed is president of the IMPACT Group, a nonprofit housing counseling service in Atlanta. And she joins us from Georgia Public Broadcasting in Atlanta. Thank you so much.

Ms. MARINA PEED (President, IMPACT Group): Thank you.

CORLEY: Well, we've heard about the national fallout regarding subprime mortgages, but what is it like on the ground? How many have been affected by this?

Ms. PEED: Well, unfortunately, we're seeing hundreds of folks coming through our doors seeking assistance because they've gotten into some mortgages and didn't realize the downsides to that.

CORLEY: Mm-hmm. And I understand that foreclosures in Georgia are up about 13 percent so far this year. Are most of those tied to this crisis we're seeing in the subprime market?

Ms. PEED: I think there's a bit of ripple effect with the subprime loans. Most of the folks that are coming in to us for assistance have had a loss of income - lay off, loss of hours. We've had families of reservists who've been called to active duty. Health problems, the costs for job interruption and paying for medical bills can cause a problem in paying it. And then there is certainly that where folks got these mortgage products that they couldn't afford. They didn't anticipate the interest rate going up. Taxes and insurance weren't escrowed in a lot of these subprime loans, and so they get a bill and hadn't factored that into their budget. Some folks have faced with perfect storm of several of these factors, and it has a ripple effect in the neighborhood.

CORLEY: We spoke earlier with a former official with the Federal Reserve who says there has to be much more oversight, and it will be tougher, much tougher for people with a somewhat troubled credit to buy a home in the future with a subprime mortgage. And I was wondering what you thought. Should there be more restrictions in place and more monitoring of these loans that are considered somewhat risky?

Ms. PEED: You know, our whole philosophy or mission for 15 years has been to promote sustainable homeownership and focusing on low and moderate-income families and minority families. And we've seen that these kinds of mortgage products really aren't a sustainable way to get into home ownership. You know, the biggest misperception that we see and hear is why would they have given me a loan if I couldn't afford it? They said I qualified for this. People think that if they qualify for a loan, it also means they can afford the loan. The disconnect between qualifying ratios that lenders use and your home-based budget affordability have gone too far apart.

CORLEY: But you've mentioned some of the problems that people have had as they come into the office and talk to you. But I was wondering if there were also individuals who could have received a standard loan, but decided to go with some of these subprime loans in order to get a bigger house, for instance, or anything like that. Are any of your clients fit that bill?

Ms. PEED: We have. In fact, actually, there've been some studies - the data shows that many of these loans went to minorities across income ranges and credit score ranges. So you have to say if it's not strictly that poor credit is the cause or the driver for these loans, what's happening in marketing these products to families of color, to folks of these different income ranges? And to get the quick yes, it's going to cost you more.

CORLEY: Mm-hmm. Well, you obviously work for a housing counseling service. How have you talked to people that are facing these difficulties now with these loans?

Ms. PEED: Unfortunately, we usually don't get folks to see us until they're several months behind. And we hope that with the attention, like your program, that people will kind of get out of the denial mode and seek help sooner. So the first thing is to let folks know that there's nothing worse than doing nothing. Know your personal business. Know what your assets are and your income and wages. Understand all of your expenses, including your credit card debt, your utilities, childcare, transportation costs, health care and so on.

And then also, go back and find that thick file that's in a drawer somewhere that has all the information that you've got when you closed on your loan. Look at your mortgage documents, and does it include escrows for property taxes and insurance? Is there a pre-payment penalty? When does the interest rate adjust and by how much?

Housing counseling agencies like ours can help people understand all of that language in these complicated documents. And then you have to ask yourself, can you really afford to stay in the house? We all get so personally and emotionally attached to our home, but sometimes the best thing for our family is to let it go. And there are some legitimate options to help you financially recover sooner without a foreclosure.

CORLEY: Marina Peed is the president of the IMPACT Group, a counseling service for housing issues in Atlanta. And she joined us from Georgia Public Broadcasting in Atlanta. Thank you, again.

Ms. PEED: Thank you.

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