Subprime loans put in spotlight

Gathering takes on foreclosure problem

Last year, the number mushroomed to 990, an eight-year jump of 327 percent, one of the biggest in the state.

Housing experts predict home losses may climb this year by another 20 percent.

County and state officials met last week to talk about rising foreclosures in Cabarrus County and across the state.

Concord and Kannapolis have been hit by job losses and plant closings, speakers noted. But many homeowners lost their houses because they were lured into high-risk, subprime mortgage loans they couldn't realistically afford from the outset.

"We're here to talk about how the American dream of home ownership is becoming the North Carolina nightmare of foreclosure," said Louise Mack of Prosperity Unlimited in Kannapolis.

The nonprofit affordable housing agency organized the gathering Wednesday at the Speedway Club at Lowe's Motor Speedway. The event was co-sponsored by the cities of Concord and Kannapolis. It attracted more than 45 people, including real estate professionals, lenders and local government officials.

One goal was to get word to homebuyers that they should seek help from consumer counseling agencies, such as Prosperity Unlimited, before their rising loan payments get too high to afford. That can happen in the second or third year.

Subprime mortgage loans from private lenders, designed for buyers with poor credit, often feature double-digit interest rates and rapidly escalating monthly payments. After several years, the loans also may require a lump sum -- or balloon payment.

Loans insured by the federal government, including the Federal Housing Administration, also are copying features of subprime loans. More of those loans are foreclosing as well, Observers studies show.

The newspaper has found that high-risk loans -- and foreclosures -- cluster in new entry-priced subdivisions built in the past 10 years, with homes valued under $150,000.

Last month, the Observer profiled one hard-hit Concord subdivision, Southern Chase, constructed by Beazer Homes USA. About 18 percent of the subdivision's 406 homes had foreclosed. The national average is 3 percent.

As a result, property values dropped for everyone who remained in Southern Chase. Those owners often couldn't sell their homes or refinance their loans.

Foreclosure isn't a problem for just low-income buyers, several speakers said Wednesday.

"These are working people -- police, firemen, local government workers, teachers," Mack said.

Fixing the foreclosure problem is complex, speakers said. Among the proposals:

• Offer good-quality, low-cost rental housing. "You have to have good rental stock for people to live in and save money, so they can build equity to buy a home," said Chris Estes of the N.C. Housing Coalition.

• Require lenders to verify that buyers have a realistic chance of repaying their mortgage loans. Now, loan originators don't always have to check a buyer's income or debts. Many subprime loans aren't likely to be sustained by a buyer for more than two years, several speakers told the group. A bill before the N.C. General Assembly would toughen standards for underwriting subprime mortgage loans.

• Regulate loan servicing companies more tightly. These companies, which many homebuyers believe are their lenders, contract with lenders to oversee mortgage payments. Some servicing companies levy unnecessary fees that push homeowners into foreclosure, consumer advocates say. Consumer protection attorney Andrea Bebber said most foreclosure proceedings that are successfully defended in court involve loan servicing companies and their fees.

State legislators are considering a law that would regulate servicing companies.

• Continue to offer more education to first-time homebuyers, so they won't be lured into mortgage loans they can't afford.

• Lobby state legislators for tougher laws against mortgage fraud, higher standards for subprime mortgage loans and loan servicing companies. Tell them to do what they can to combat foreclosures.

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