Easier mortgages prompt foreclosure concern


U.S. homeownership is at an all-time high.

The low-interest mortgages of recent years have made it possible for more families, particularly those with low incomes, to buy their own homes.

But now the same housing advocates, who for decades have been trying to make it easier for low-income Americans to buy, fear that it's almost too pain-free for people across the board to own homes.

"Nowadays it's easier to buy than to rent a home," said Vincent P. Quayle, director of the St. Ambrose Housing Aid Center in Baltimore. "You at least need a month's deposit to rent but you can wiggle your way into a home with nothing down. It's scary."

Lenders, faced with a saturated traditional home-buying market and fewer refinance opportunities, want to lure groups that may have previously been ignored. Low- to moderate- income families, racial or ethnic minorities and recent immigrants are the new "emerging market segments," and they can choose from a wide menu of programs based on nontraditional underwriting guidelines.

That's all good, but with the low-finance rates of recent years, some experts argue that most people who can afford a home have already bought one. And as the mortgage industry regroups after three straight years of record home sales and refinancings, industry experts worry that even more people who can't afford homes will be extended credit and possibly face payment problems.

"We have fewer eligible people from the pool of potential homebuyers," said Celia Chen, housing economist at Economy.com.

Some new homeowners who in past years might not have qualified for a traditional mortgage do not have the financial resources to carry a large monthly payment, so they wind up losing their houses when they default on their loans.

Mortgage payments 30 or more days past due for the nation's 34 million home loans rose to 4.62 percent during the second quarter, up from 4.52 percent in the first three months of this year, according to the Mortgage Bankers Association of America. The delinquency rate hit a high of 4.66 percent during the third quarter of last year.

In Maryland, mortgage payments 30 days or more past due rose to 5.02 percent of the 916,376 loans serviced here. It was up from 4.6 percent between January and March. The state's peak delinquency rate was 6.3 percent in the fourth quarter of 2000.

"There is a real concern that the hurdles to obtain financing have fallen and that mortgages have been made to people who, despite the benefits of homeownership, should not be borrowers," said Keith Gumbinger, vice president of HSH Associates in Butler, N.J., which studies the mortgage market.

The high number of loan defaults in Baltimore and throughout the country worries such advocates as Quayle of St. Ambrose.

"We're seeing people who've been talked into buying homes that they can't afford," he said.

Most government leaders continue to push efforts to increase homeownership, thinking that it helps more people build equity and strengthens neighborhoods.

"I don't think the individuals filling out the applications, searching for a home or figuring out what type of home they can afford, think that the process has become too easy," said Frank Coakley, director of the Fannie Mae Partnership Office in Baltimore.

The growth in homeownership has exploded during the past decade. The number of Latino homeowners, for instance, rose 16 percent from 1994 to 2002, according to the Census Bureau. Black homeownership rose 11 percent. Total homeownership in the same period rose 6 percentage points to 70 percent.

Nationally, the House of Representatives recently appropriated $400 million for down-payment assistance under the American Dream Downpayment Initiative for fiscal years 2004 and 2005. The measure is expected to turn 80,000 low-income families into homeowners, and help meet President Bush's "homeownership challenge" to increase minority homeownership by 5.5 million families by the end of the decade. Down-payment and closing costs remain the most significant barrier to homeownership for first-time home buyers.

Jose Candelaria, a 26-year-old manufacturing worker from Puerto Rico, feels a lot of temptation to buy a home, even though he's not ready.

"You hear about how much easier it's become," he said.

He hasn't applied for one of the many mortgage programs targeting Latinos because he's not sure he earns enough to make his monthly mortgage payments and have enough money left over for food, utilities, car insurance and other necessities, not to mention an occasional outing with his 5-year-old son.

So far, he's been able to resist the urge to buy. He envisions himself purchasing a two-bedroom home for less than $60,000.

"I want to take my time, research different options and make sure I know what I'm getting into," Candelaria said.

But not everyone waits and saves, Quayle said. He sees a definite connection between the easy application process and a study reporting that Baltimore has one of the highest homeowner-default rates in the nation.

The study was released last year by the National Training and Information Center, a Chicago grass-roots organization. It showed the citywide default rate for Federal Housing Administration loans in Baltimore is 17.8 percent for mortgages made between 1996 and 2000. Only Miami had a higher rate, at 20.9 percent.

The U.S. Department of Housing and Urban Development and several lenders dispute the results of that study, which consists of a survey of default rates in 22 cities. HUD's national inventory of homes acquired through foreclosure has dropped during recent years, officials said.

But Quayle isn't convinced.

The St. Ambrose Housing Aid Center in Baltimore found that the number of foreclosure petitions increased 150 percent between 1996 and 1999, from 2,000 to 5,000. It has hovered around 5,000 for each of the past four years.

"We only have about 8,500 new mortgages in the city each year," Quayle said. "So when 5,000 are in foreclosure that's a problem."

Fannie Mae is perhaps one of the biggest public proponents of closing the homeownership gap. The nation's largest source of residential mortgage funding recently made a pledge to invest $2 trillion over the next 10 years to increase homeownership rates, strengthen communities and serve 18 million targeted American families.

Coakley said Fannie Mae has committed to purchasing $2 million in eligible mortgages from the Baltimore H.E.L.P. program, which is a three-year pilot comprising four components: mortgage counseling and financial management services; an affordable emergency repair and mortgage refinance loan fund; intervention with existing mortgage lenders, including legal intervention as needed; and write-down grants to help borrowers in receiving an affordable mortgage loan.

Overall, as many as 500 families may benefit from access to counseling and financial resources, Coakley said. He said Fannie Mae works with housing counselors to help educate consumers about buying.

"Education is a key intervention tool in helping consumers make the most informed decisions," Coakley said.

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