More Homebuyers Seeking Rescue From Mortgages

"Homeownership and home values have increased dramatically in the United States in recent years. So, too, has the number of mortgages, with mortgage debt far outpacing consumer and even the national debt. The availability of mortgages has made all the difference for the millions of households that needed assistance in becoming homeowners. For many, however, that assistance may have led them into financial situations that simply are not sustainable.

As property values have gone up, homeowners’ paper wealth has increased. Mortgage lenders have encouraged owners to convert that equity into cash, and many people do not understand the ramifications of doing so, says Jim Wheaton, deputy director of Neighborhood Housing Services of Chicago (NHS). At the same time, adjustable-rate mortgages, interest-only loans and other products aimed at low-income buyers have proliferated in the last 10 years. Underwriters have expanded their rules to allow people with higher credit risk profiles and riskier employment situations to purchase homes. In some cases, says Wheaton, it has become easier to buy than rent, in terms of the amount of cash required at the outset.

These factors, coupled with a rise in predatory lending practices (which lure homebuyers into loans with huge fees, undisclosed balloon payments and other traps), have led to an increase in the foreclosure rate in recent years. While the threat of foreclosure has always been scary to homeowners, research is now demonstrating that other stakeholders lose out when a home is repossessed. As a result, some community and national nonprofits are offering services to help low-income homeowners stave off the loss of their home when faced with foreclosure."