ATLANTA  If you're like most homeowners, you've probably never given much thought to whether your neighbors pay their mortgages on time. You've got enough to worry about.

Dannice Clark was like that. She'd skip newspaper articles about the trouble with "subprime" loans for people with risky credit. While fixing dinner, she'd tune out TV reports on how subprime defaults are accelerating the nationwide pace of foreclosures. Why should she care? She had a fixed-rate loan on a 5,000-square-foot home with two kitchens in Waters Edge, an upscale subdivision in Stone Mountain, just outside Atlanta.

Here's why: Clark has been trying to sell her home for nearly five months and hasn't had one offer — even after cutting the price to $334,900 from $359,000. The problem is that her street is dotted with four foreclosed homes that lenders are trying to unload for less money.

"It's truly affecting the sale of my house," says Clark, 45, who works for the U.S. Postal Service. "Why pay full price for my house when you can pick up a foreclosure for $30,000 or $40,000 less?"

And as thousands of homeowners across the nation are learning, it's not only home values that are being affected by the foreclosure crisis. When foreclosures rise, as they have in Waters Edge and other middle-class areas amid the meltdown of the subprime mortgage market, they can unravel the social fabric and reshape neighborhoods.

The crime rate can rise while the quality of the schools goes down. Homeowner associations can see their treasuries drained. Nearby businesses close their doors, and local tax revenue suffers.

These problems used to be concentrated in poor, urban and minority neighborhoods where mortgage defaults are more common. The real estate boom, turbo-charged by looser lending standards that began in 2000, changed that.

Communities across the country, including some exclusive neighborhoods, have begun to feel the collateral damage of the pandemic use of adjustable-rate mortgages, or ARMs, that required little or no down payments or proof of income.

In the wealthy subdivision of Greenridge in Lithonia, Ga., for instance, 10 homes are for sale from $700,000 to $1.1 million. Six of the owners had interest-only mortgages and couldn't keep up with their rising payments. Four of the homes have gone through foreclosure, says Mike Grier, an agent at Century 21 A-Team.

"The foreclosure trends are definitely accelerating in middle-income suburban communities," says Dan Immergluck, associate professor of city and regional planning at Georgia Institute of Technology.

"What I'm still scared about is the interest-rate resets in the prime market," Immergluck says, referring to the exotic loans made to people with good credit that let them pay only the interest, or even less, until the loans reset to higher rates.

"I'm concerned that could really tip some of these middle- and upper-income neighborhoods, in terms of high foreclosure rates."

Foreclosures expensive

It's difficult to put a dollar figure on the problem. But one study in the Chicago metro area found that each foreclosure costs the municipal governments there more than $30,000, according to the Homeownership Preservation Foundation. One foreclosure will shave up to 1.5% off the value of the other homes on the same block, Immergluck's research found.

But there are other costs, harder to measure, such as feeling increasingly unsafe as foreclosures seep into your community, says Laura Walker, a retired human resource executive.

She fought for years to combat rampant mortgage fraud and foreclosures in Waters Edge by tracing the names of con artists who were buying and selling in the areas, as well as their accomplices, and lobbying authorities to take action.

"We saw evidence of insurgency from drug dealers and criminal activity we certainly did not want," as homes began to empty and thefts in the area increased, she recalls. "It added a sour note about what kind of community we were turning into. We had to get vigilant to let others know we care about our properties and we don't want these unsavory types of people in our communities."

Conditions in Waters Edge have improved recently, but 50 homes are for sale in the neighborhood, 21 of which are foreclosures, says Century 21's Grier.

Georgia wasn't even among the states with the most foreclosures at the end of last year. The most desperate stories are in Rust Belt cities and suburbs in Ohio, Michigan and Indiana, where job losses — the No. 1 reason people lose their homes — are magnifying the fallout.

What's perhaps most worrisome about the rise in loan defaults in the Atlanta area is that what's happening here is beginning to show up in dozens of economically vibrant cities, such as Miami, Sacramento and Boston. Foreclosure rates across the nation are likely to continue to rise through next year as homeowners with ARMs see their payments jump.

A projected 2 million subprime borrowers will lose their homes to foreclosure by the end of this year, according to the Center for Responsible Lending. And that estimate was made late last year, before tougher lending rules began shutting out some homeowners, who might be unable to refinance once their ARMs reset to higher rates.

The difficulties are worse in inner-city areas where poverty and joblessness have been compounded by the troubles that shadow foreclosures.

When John-Paul and Heidi Chandonia moved to Atlanta's Washington Park neighborhood in 2001, they thought it was enjoying an urban renaissance. But once the real estate boom arrived, many residents sold. Homes were flipped from one buyer to another and, in many cases, no one moved in.

Half the homes on the Chandonias' street are now vacant. Some have gone through foreclosure more than once.

A new, two-story home around the corner was vandalized around Christmas. The doors are off their hinges; the heating, ventilation and air-conditioning unit is gone — stolen for the copper coils, which are peddled on the black market. A few doors down, a heroin addict has moved into a vacant home, John-Paul says.

Heidi has called the city's building-code-enforcement department many times, but little has changed. She's contacted neighborhood groups and city officials. But the Chandonias' part of Washington Park continues to decline. In May, a neighbor was dragged behind a vacant house and raped.

That's when Heidi said, "I give up." They put their home on the market. It took a year to get an offer. They now have a buyer and could move by the end of the month.

"Our neighbors want to get out of there, too," says Heidi, 26, who works for an association that builds affordable housing. "It's been too much. It's gotten worse and worse and worse. … It's been extremely stressful just to watch it go downhill and feel that there's not anybody paying attention."

In the upper-middle-class neighborhood of Smoke Rise, 18 miles east of Washington Park, Ann Fulman has had the same feelings.

Her area was one of the early targets of mortgage fraudsters, and she remembers how hard it was convincing regulators and law enforcement that mortgage-paying residents like her were victims as much as the lenders.

"We started talking to law-enforcement agencies, saying, 'We're victims. Come help us,' " she recalls. "They said, 'You're not victims.' … And I said, 'What do you mean, I'm not a victim? I'm living with strippers and convicted arsonists and drug dealers. There are meth labs in my neighborhood. Hello!' "

As homes fall into foreclosure, a neighborhood frequently turns more transient. Investors often buy homes in foreclosure and rent them out if they can't sell them.

"You end up with a very fragmented community," Fulman says. "When investors buy them and turn them into rental property, it can be Section 8 (a government rental assistance program). Not that there's anything wrong with that, but folks come in from a different background with different expectations and don't have the means to keep up the place."

Local schools also suffer when people lose their homes in large numbers. Foreclosures can disrupt not only the tax base of an area, but also the classroom environment.

"It definitely affects education in many ways," says Deborah Crawford, a fourth-grade teacher at Pine Ridge Elementary in Stone Mountain. "This year is very transient. There's a teacher two doors down from me; he started with 22 students in August and only has 10 of the same kids now. How hard is that to adjust to?"

Teachers must spend more time with new students, who are "upset about moving," she says. "It's hard to merge kids in like that. You have to assess them to see where they are (academically). It's unfortunate, but sometimes they get lost" trying to keep up.

Many local governments have been caught off-guard by the economic and social domino effect of foreclosures.

At the end of January, Atlanta officials and non-profit organizations launched an ad campaign to make residents aware of a national foreclosure prevention program and toll-free hotline (888-995-HOPE or 888-995-4673). They hoped to get 5,000 calls from people in Atlanta this year. They blew past that figure last month.

In the suburbs of Gwinnett County, the police department recently created a Quality of Life unit to address problems often associated with foreclosures. Working with other government agencies, the unit targets such issues as building-code enforcement, vagrancy and graffiti. But their powers and resources are limited.

At a town hall meeting last week, residents in a Stone Mountain neighborhood were upset about a vacant home on their block, says Maj. Dan Branch, who heads the unit for the police department.

"Although it's in foreclosure, the bank is not taking ownership, and the people who own the house are not taking ownership, and this house is run down," Branch says. "There are nine (building-code) violations on the house. Teenagers are breaking into it. We can't legally go in. The house is vacant, run-down. It's horrible."

'It's a death spiral'

Last week, all the officers from the Quality of Life unit were temporarily reassigned to try to catch a rapist. Such steps make it difficult to focus resources on less-threatening neighborhood problems.

In some cases, the task of protecting a neighborhood falls to local groups and non-profits. "If you don't have a strong community association with leaders who care and roll up their sleeves and do something, it's a death spiral," Fulman says.

Some states, such as Ohio, have started funds to help cash-strapped homeowners restructure their loans to avoid foreclosure. In Congress, there are proposals to get the Federal Housing Administration to help homeowners with ARMs.

But there's no quick fix. And as foreclosures mount, the spillover effect on suburbanites could worsen before it improves. In Waters Edge, Clark is not only feeling like a victim of foreclosures in her neighborhood; she may soon be part of the problem in another.

She's got a fixed-rate loan on the home she lives in, but when she refinanced her second home 3½ years ago, the mortgage broker "pulled a bait-and-switch on me," she says, and gave her an ARM.

The house, in a nearby subdivision, also had an inflated appraisal, so she owes about $20,000 more than it's probably worth. Meantime, her monthly payment on the second home has jumped from $567 to $1,148, far more than the monthly rent she collects on it.

"I'm going to have to sell it," she laments. "I went out and bought a for-sale sign and am going to try to sell it myself, or it's going to have to go into foreclosure."

Has your community been affected by foreclosures? Are you worried about your mortgage? Tell us your experiences:

Enlarge By Michael A. Schwarz, USA TODAY The renter of this home in the Waters Edge community in Stone Mountain, Ga., was evicted and the possessions left behind were strewn in the front yard.