During the first half of 2007, the number of foreclosures in the Bridgeport/Norwalk/Stamford region spiked by 522 percent compared to the same period in 2006, according to RealtyTrac, a California-based company that compiles real estate trends.
The agency found a similar pattern in the New Haven/Milford area, where foreclosures jumped 547 percent in 2007. The Hartford region experienced a 446 percent increase compared to the first half of 2006, according to RealtyTrac.
The Association of Community Organizations for Reform Now, or ACORN, estimates foreclosures in the Bridgeport region will cost the economy $80 million.
ACORN projects losses as high as $85 million in the Hartford region. ACORN's study predicts that foreclosures in Fairfield County will mostly occur in Bridgeport, Norwalk, Stamford and Danbury.
"We are inundated with calls from scores of people," said Attorney General Richard Blumenthal, referring to those seeking help from his office.
"We may be on the cusp of a huge wave breaking over Connecticut. People are very understandably upset," Blumenthal said.
Nationally, the picture is equally bleak. The Center for Responsible Lending estimates 19 percent of subprime loans made in 2005 and 2006 will lead to foreclosure, and 1.7 million families will lose their homes.
Republican congressmen last
week were told in a briefing paper that 20 percent of all mortgages issued last year came from the subprime market, and 11 percent during the first half of this year. The Mortgage Brokers Association estimates foreclosure proceedings began last year for 550,000 subprime loans.In all, there are $10 trillion worth of outstanding loans in the U.S.
Subprime and predatory loans first appeared in the 1990s as a high cost, high interest way to refinance a loan. The packages were generally sold to older, lower-income and minority customers, according to Americans for Fairness in Lending.
Beginning in 2001, as the dot-com bubble burst, Wall Street increased investment in subprime lending. That encouraged lenders to seek middle-income customers and develop products for that market. The loans were packaged around adjustable rate mortgages, which offered low, fixed rates for one to three years.
But what many consumers didn't realize is those fixed rates reset after the initial period. Homeowners suddenly faced rates six or more points higher than when they signed the loan. Monthly payments rose by 20 percent or more, leaving many unable to make the higher payments, AFIL said.
Critics of subprime lending say most of the loans were deceptive and brokers used predatory tactics to find customers. However, others say that while there are examples of abuse in the subprime market, millions of Americans who could not have qualified for traditional bank loans were able to purchase homes.
According to AFIL, subprime loans differ from traditional bank loans because the ability to repay is not a key factor in the decision to issue the loan. There also is little regard for what happens when the interest rate spikes.
Most subprime lenders go by unfamiliar names, but are subsidiaries of well-known, mainstream banks. For example, EquiCredit, a popular subprime lender, is affiliated with Bank of America, AFIL said.
Other subprime lenders include Associates and Citifinancial, which are part of Citibank; Advanta, a subsidiary of Chase; and Household Financial Corp., a subsidiary of HSBC, AFIL said.
Kathleen Day, a media manager for the Center for Responsible Lending, and Kristen Keefe, AFIL director and a staff attorney for the Empire Justice Center, said most people holding subprime loans were unaware interest rates would spike a few years down the road.
Day and Keefe said they asked professional brokers, underwriters and others to review the fine print in a variety of subprime loans, and those experts were unable to determine the exact conditions and charges.
Still, not everyone is convinced foreclosures attributed to the subprime market are the fault of predatory or deceptive lending. Some say consumers simply bought houses they could not afford.
U.S. Rep. Christopher Says, R-4, said the issue of who is being foreclosed upon, and why, is important. Shays attended a day-long hearing last week before the Committee on Financial Services, which is considering a series of laws to regulate the subprime industry.
Shays said many buyers in the subprime market put no money down. Although they now face losing their home, Shays said those buyers "never really owned a home in the first place. I'm interested in the extent to which individuals with viable credit were induced to get into the subprime rate."
Shays said he's concerned Democrats want to use taxpayer money to bail out homeowners who should not have bought a house. "I can't imagine helping people who should not have gotten a loan in the first place."
Still, Shays expressed interest in legislation that would help victims of fraud and deceptive lending practices. "This is a big issue. I'm trying to get a handle on what are these loans and did they get a fair rate."
Other Republican ideas, according to the briefing paper, include new licensing standards for mortgage brokers, tougher disclosure standards, encouraging brokers to evaluate the ability to repay loans and strengthening fraud enforcement.
Nicholas Graber-Grace, head ACORN organizer for Connecticut, said the fault lies at the feet of brokers and lenders who knew they were selling loans people could not afford. He said those lenders didn't tell their customers interest rates would balloon to the point where they could not make payments.
"What we have here are risky loans, not risky borrowers. Brokers were lying to people about what they were selling. They should not make loans to borrowers who could not pay," Graber-Grace said.
Sen. Chris Dodd, D-Conn., who is pushing the Bush administration to help homeowners facing foreclosure, said the ACORN report shows a "devastating impact.
"This is bad news for millions of homeowners. What's particularly troubling is that this is happening in our own back yard. In Bridgeport alone, the cost of these likely foreclosures is expected to hit $80 million," Dodd said.
The senator favors legislation to stop predatory lending. "These grim statistics underscore the abject failure of this administration to protect homeowners from unscrupulous and predatory lending practices, and the need for tough action to protect homeowners."
Dodd and other Democrats want to increase federal funds for community-based housing advocates so they can help homeowners understand the mortgage market. The lawmakers also want to lift caps on the Fannie Mae and Freddie Mac housing programs so they can help refinance troubled borrowers.
Bridgeport Mayor John M. Fabrizi said his housing staff is gearing up to educate consumers about the risk of subprime loans. But, Fabrizi said, there is little local officials can do for homeowners facing foreclosure. He urged the federal government to step in.
"The bottom line is we need legislation to revamp these programs and cut it off so it does not go forward. I would push for a pot of money to help folks who are losing their homes. This is unfathomable. It just does not stop when you lose your home," Fabrizi said.
Blumenthal said his office soon will announce a broad mortgage assistance program in an effort to provide advice and legal guidance, and point borrowers to agencies that can help with financial assistance and other resources.
"What we have found in these cases is brokers disguised and concealed the real income of the people getting mortgages," Blumenthal said. "Brokers make money per loan. I'm astonished how greed breeds this. You have to have a Ph.D to understand some of these terms."
Many advocates, such as the Center for Responsible Lending, are pushing legislation that requires lenders to make sure borrowers can afford the loans and that everyone, including the lenders, have a stake in the outcome. The lending center also is pushing for "reasonable workout" plans to help borrowers get loans back on track.
Graber-Grace, the ACORN organizer, said his group will lobby state legislators to pass laws during next year's session to protect consumers from predatory lending.
"We must make sure there are laws to prevent this. There should be evaluations on the highest rate the loan will adjust to and whether the borrower can afford it," Graber-Grace said.
"Everyone recognizes we have to be proactive on this," said Alanna Kabel, Bridgeport's housing director. "It will have a negative impact on cities and urban centers. We are referring people to counseling agencies so they don't lose their homes. The state and federal government is anxious to see remedies in legislation and funding so people can find a way to get into another mortgage.
"The good news is, this awful situation makes everyone recognize how devastating it can be and how we need to help people not get into these situations."
Bill Cummings, who covers regional issues, can be reached at 330-6230.
