Jennifer Babin bought her house in Morrisville two years ago with an adjustable rate, subprime mortgage loan. Like most adjustable, subprime loans, it readjusted after two years, and earlier this year, Babin's monthly payment rose from $795 to $1,095.
Facing the possibility of further increases, Babin is now fighting to keep a roof over her family.
"You just trust people. You're told one thing, and then another happens," Babin says. "This was my first home, and I didn't know a lot."
According to the Center for Responsible Lending, the national subprime mortgage market grew from $35 billion to $665 billion between 1998 and 2005, and increased again in 2006.
Because many homeowners find themselves in Babin's position, struggling to keep up with rising mortgage payments, home foreclosures have spiked right along with the subprime mortgage market. Between 1998 and 2006, foreclosures in North Carolina rose 174 percent, according to the Administrative Office of the Courts.
In Wake County, foreclosures rose more than 276 percent between 1998 and 2006, including a 7 percent increase from 2005 to 2006.
Orange County saw an increase of 217 percent from 1998 to 2006; Durham's rose more than 200 percent in the same period.
Babin says she trusted her real estate agent to handle the purchase, including agreeing to use the lender, home inspector and closing attorney the agent chose. In retrospect, she wishes she had asked more questions up front.
"I went with whoever she put me with," she says. "She put me in the loan and said I'd need to refinance as soon as possible."
Many homebuyers are tempted by the initially lower payments that subprime, adjustable rate loans provide, trusting that they will be able to refinance their homes into lower fixed-rate mortgages eventually.
When Babin went to refinance her loan, lenders told her she would have to wait; meanwhile, interest rates were on the rise.
There are very few laws regulating the mortgage lending industry, say advocacy groups who are pushing regulations to protect consumers—some of which are in the works.
In July, Gov. Mike Easley signed two bills into law that address mortgage fraud and provide harsher punishment for violators.
The North Carolina Housing Coalition is now pushing for additional legislation, including three bills that seek to better develop the foreclosure process and to thwart predatory subprime lending.
Julie Straub, a mortgage broker at Fonville-Morisey in Durham, applauds the recent legislation.
"There are going to be some severe punishments coming for mortgage fraud, but it's an industry," she says. "We are not an industry that's regulated—we have a good faith estimate, but there's nothing to say how accurate we have to be on that. And that's where you run into problems."
In other words, if a broker or agent can make more money for selling a subprime, adjustable loan than they would by selling the 30-year fixed-rate loan, they are not obligated to let the borrower know that both options are available.
Borrowers need to do their homework, says Bill Rowe, general counsel at the North Carolina Justice Center.
"It's a different mentality today," Rowe says. "My own perception is, there's a loan out there for just about anybody. The mortgage lenders won't say, 'I'm a subprime lender and I like to prey on people.' Nobody says that."
Anthony Alarcon, financial justice coordinator at the Raleigh branch of ACORN (Association of Community Organizations for Reform Now), says it's not just the lenders.
"They're not necessarily bad. The industry just created a product that has spiraled out of control," he says. "I'm a firm believer that there are some brokers out there that thought they were doing a good thing for the people. The adjustable rate gives a lot of people the opportunity to go into homes who probably wouldn't have been able to otherwise."
But before you get into that loan, see a housing counselor, says Al Ripley, a consumer advocate for the N.C. Justice Center.
"It's impossible to know what the best deal is until you've talked to several brokers and several lenders," he says. "And I would suggest a HUD-certified housing counselor."
Counselors are available for those in all stages of homeownership, from thoughtful shoppers to the most vulnerable people who are about to lose their homes.
Ripley advises consumers to make sure that the counseling agency is certified by the U.S. Department of Housing and Urban Development—and beware of those that aren't.
"Unfortunately, there are those who are taking advantage of people who are facing foreclosure and scamming them," Ripley says.
Legislation is filtering in through the system. Until then, the folks like Babin who face losing their homes can find valuable advice and support in local agencies.
"For every person who has taken away something, I am starting to meet someone else who is the opposite—someone who is willing to give me a hand and help," Babin says.
She says she has gotten support from a number of local organizations, including Raleigh's ACORN and Self-Help, an affiliate of the Center for Responsible Lending.
The folks over at the Justice Center and the N.C. Housing Coalition are lobbying for more funding for the North Carolina Housing Finance Agency.
The appropriations for HFA are usually about $8 million. But in 2006, the Campaign for Housing Carolina convinced budget planners to increase the appropriation to almost $20 million, raising it 230 percent. The goal is $50 million, but for now, the appropriations are helping branches of HFA like the Home Protection Pilot Program.
Hal Wright, director of the HPPP, works with people who have recently lost their jobs and are in danger of defaulting on their mortgages.
"We've certainly seen success stories," he says, citing an example of a mother in Bladen County who was five months behind on her mortgage and without a job. She was hired at a lesser pay, but with the help of the counseling agency, she was brought current with her mortgage and bills and began a savings account.
"The worst thing you can do is nothing," Ripley says. "There are people out there that you can talk to."
Babin wishes she'd known about housing counseling agencies before.
"I just kept hoping things would turn around. I didn't know where to go for help," she says. "At first I didn't say anything because I just wanted to pay my bills and be left alone. But I'm running all over now, trying to figure it out."
The best thing to do if foreclosure is unavoidable is to sell the home, Ripley says. "Hopefully you can sell it at a high enough price that you're able to pay the loan off," he says.
Babin wants to keep her home, and while it looks pretty bleak, she says she won't stop fighting.
She just started a new job at ACORN's Raleigh office, so she can help others become educated about the dangers of predatory lending and adjustable rate mortgages.
"We know we made mistakes," she says. "We just don't want to go down, we don't want to lose it all. We're scared to death because scammers are everywhere. We get mail every day asking for more money. We're not stupid, we just want to keep a roof over our heads."