High-rate, refinancing loans tied to foreclosure

FHA loans account for more than a quarter of Mecklenburg County's foreclosures, an Observer analysis found. Here's a look at other lending practices associated with large numbers of county foreclosures.

HIGH-RATE LOANS

A new mortgage industry grew in the mid-1990s, offering loans at higher interest rates to people who don't qualify for traditional loans. Such loans account for about 10 percent of all home purchase loans but result in at least 24 percent of local foreclosures, the Observer found.

The industry says it lends to people more likely to default, and that most borrowers remain homeowners. Critics say the loans may push some borrowers toward foreclosure. The higher rates cost thousands in additional interest payments. Often, the rates also escalate -- leaving borrowers unable to keep pace.

Six of 18 houses foreclosed on Rozumny Drive in northwest Charlotte during the Observer's study period from 2003 through early 2005. Three more foreclosed later. All but one of those nine owners used a high-rate loan. Their interest rates ranged between 10.9 and 13.24 percent, compared with market rates around 6 percent.

Read an Observer report on high-rate lending at www.charlotte.com.

REFINANCE LOANS

More than 20 percent of foreclosures in Mecklenburg resulted from defaults on loans taken after the home purchase.

Loans that turn home equity into cash have benefited many Americans. But some homeowners borrow more than they can afford. The problem particularly hits older neighborhoods and often older residents, who may have a lot of equity in their home but live on a fixed income that makes it difficult to keep up with debt payments.

Since the mid-1990s, two-thirds of the 29 homeowners on Peaceful Glen Road, in a 1970s subdivision in southwest Charlotte, borrowed money against their houses, often paying rates over 10 percent. Several borrowed repeatedly. By the end of last year, five had lost their homes to foreclosure.

MORTGAGE FRAUD LOANS

Prosecuted fraud caused about 1 percent of foreclosures in the Observer study. But where it hit, it hit hard.

On Colony Point Lane in Cornelius, a broker, a builder, attorneys and other real estate professionals conspired to falsely inflate property values and lie on loan forms to lure buyers into paying far more than properties were worth. Several have since pleaded guilty. Twenty of 33 houses foreclosed. Many stood empty for months. Renters moved in and out. House values dropped by one-third and more: in one case, from $318,000 at the initial sale to $170,000 after foreclosure.

Jim Hicks, a neighborhood homeowner, watched property values hit bottom about three years ago. ''Hopefully we will be fully recovered within a few years,'' Hicks says.