Our View: To reduce the home foreclosure rate, officials must educate those who are apt to default

North Carolina Foreclosure News

Why would anyone in his right mind take out a high-risk, adjustable-rate loan to buy a home?

According to a five-day series by staff writer Matt Leclercq, which concluded Thursday, the people who do it often cite the same reasons.

Some are optimists. They hope that their financial circumstances will improve dramatically before their original low-interest rates jump by as much as 20 percent. When better times don’t arrive, many homeowners find themselves facing foreclosure.

Others have limited means or shaky credit but they buy into the idea that owning a home is always smarter than renting. They believe home ownership is the surest way to upward mobility, and admit to skipping over the fine print on subprime loans that set them up for failure.

Federal statistics show that homeowners with subprime loans are 15 times more likely to face foreclosure than those with lower-cost loans from major banks.

Some home buyers are trying to make fast money. They take out adjustable-rate mortgages on homes that they plan to fix up and resell, or “flip.” In cities like Atlanta and Washington, D.C., where property values are booming, using subprime loans to buy flippable property can be a lucrative venture. In Fayetteville, property values are increasing, but at a much slower pace. Taking out risky loans in the hope of making a quick buck is a gambling man’s endeavor.

People who get tied up in unaffordable mortgages, without understanding the costs, contribute to Cumberland County’s hundreds of foreclosures each year.

The burden isn’t shared equally across the county. The Observer found some three dozen neighborhoods in which at least one home in 10 sold at auction between 2001 and 2005.

The series of stories shows that with failed mortgages, entire neighborhoods suffer. Bad loans lead to blighted communities and stunted property values.

It will take a combination of legislation and education to protect consumers who take on mortgages they can’t afford.

State lawmakers are considering reforms that target aggressive lenders and fees that often bury homeowners struggling to avoid foreclosure.

The General Assembly should also consider legislation that would require certain home buyers — those at risk of falling for a risky option — to get mortgage counseling before they sign on the dotted line. Creating a state education campaign and a hotline for homeowners in crisis could also help.

The sad stories of families losing their homes will continue to flood in as consumers fall victim to predatory lenders and their own bad judgment. But the state has a responsibility to protect and educate as many people as possible. Borrowers who are educated about the mortgage industry are less likely to be abused.

Article Source http://www.fayobserver.com/article?id=261477