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Don't buy into a mortgage mess
Bankers and activists debate cause of first-time owners' woes - and who's responsible
By CHRIS O'MALLEY
The Indianapolis Star
02/16/2004
Rock-bottom interest rates and mortgages featuring low down payments have allowed more first-time home buyers to fulfill the American dream.
But, for some, the dream has turned to a nightmare.
Many inexperienced buyers now face foreclosure, complaining they didn't realize the high cost of homeownership - everything from adjustable-rate mortgages to hidden taxes to construction defects.
Those not near foreclosure end up with lower property values when neighbors abandon homes.
"It's not about wealth-building. It's not at all. It's about future, blighted communities," said Aisha Sabur, a resident of Indianapolis.
Already in foreclosure is Indianapolis resident Dee Barnes.
Barnes bought a house in 1999. She was surprised that she was approved for a $103,000 mortgage with her then-income of about $25,000.
The company later sold her loan to a national mortgage company, which would not work with her when she fell behind in payments.
"They basically are telling me I don't have enough income to maintain the mortgage," said Barnes.
Barnes said she now earns $4,000 a year more than when she bought the house.
"Nobody is looking at the fact of how did I get into the home in the first place," she said.
Irwin Mortgage, which made the loan, said Barnes met FHA loan guidelines. Builders say buyers need to take more responsibility in their financial affairs.
Such scenarios are fueling a debate over just who is responsible for foreclosures and other troubles facing first-time buyers.
The Association of Community Organizations for Reform Now, a national activist group that represents low- and moderate-income individuals, levels the blame at builders of entry-level homes.
For example, fliers mailed to apartment dwellers in recent years tout mortgages at roughly the same cost as rent.
Some ads target those with past bankruptcies and foreclosures and declare that even "disabled veterans, single mothers" might qualify.
"It really sets up first-time homebuyers to fail," said Kate Van Winkle, an ACORN organizer in Indianapolis. "We obviously want people in homes but not at this cost."
Much of the problem lies with federal loan programs offered by traditional lenders designed to make housing more attainable, said Mildred Wilkins, a former foreclosure specialist at Fannie Mae and now a consumer advocate and president of www.HomeOwnership Matters.com .
The programs have reduced the down payment required from 10 percent to 3 percent to nothing in some cases.
But a number of these mortgages also allow the interest rate to climb over the second and third years before it permanently locks in, increasing the monthly payment by as much as $200.
For a first-time buyer barely able to afford the initial payments, the increase could be devastating.
"These loan programs were designed to make housing more affordable, easily attainable and available for everyone," Wilkins said. "They have succeeded with an astonishing and totally unacceptable side effect - unprecedented foreclosure rates."
Sometimes would-be buyers hear only what they want to hear, said Patricia Jordan, training coordinator for the Indianapolis Neighborhood Housing Partnership.
"In general, the most common problem seems to be that people aren't educated" about home buying, Jordan said.
One question buyers fail to ask - or do not fully comprehend - is the impact of an adjustable-rate mortgage, said Rebecca Haynes-Bordas, an instructor for Purdue University's Marion County Extension Service.
"A lot of times, people haven't done a basic budget to begin with," she said.
"People don't have money set aside in an emergency fund, and then they get a house and they're not prepared to deal with the repairs."
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