FAIR GAME; Home Loans: A Nightmare Grows Darker
SNAZZY and newfangled mortgage loans, like those with low initial rates of interest or extended terms of 40 or 50 years, helped to drive homeownership rates in the United States from around 64 percent two decades ago to a peak of almost 70 percent in recent years. Called ''affordability loans,'' these new kinds of mortgages have gone mostly to first-time home buyers and borrowers with tarnished credit or spotty employment histories.
Now, however, with home foreclosures and mortgage delinquencies soaring, it is becoming clear that the innovative loans that lenders championed -- in what the industry called the ''democratization of credit'' -- are turning the American dream of homeownership into a nightmare for many borrowers.
Even though these subprime mortgages account for only one-eighth of total mortgages outstanding, they represent 60 percent of foreclosures, according to the Center for Responsible Lending, a nonprofit and nonpartisan research organization in Durham, N.C. This is not surprising, since the features common to subprime mortgages actually increase the risk of foreclosure, mortgage experts say.
''The subprime market should be an additional and welcome opening of the credit markets for borrowers who have previously been shut out,'' said Michael D. Calhoun, president of the center. ''But it has been allowed and even encouraged to develop in a way that we think will result in a net loss of homeownership.''
For years, the homeownership rate in the United States ranged from 60 to 65 percent of the total population. But in 1995, President Bill Clinton directed Henry G. Cisneros, then the secretary of the Department of Housing and Urban Development, to work with the housing industry, nonprofit groups and other government officials to develop the National Homeownership Strategy, ''an unprecedented public-private partnership to increase homeownership to a record-high level over the next six years,'' as described in an Urban Policy Brief in August of that year.
