- The Washington Times - Tuesday, October 1, 2002

CHICAGO
Beth Johnson and the U.S. economy both were on a roll in 2000, when she bought her first home. The single mother from Mankato, Minn., joined the swelling ranks of homeowners on her modest but steady income on what seemed like a manageable budget.
What she didn't anticipate were sudden medical bills and a shrinking economy that wrecked her financial plan and dried up the job market, resulting in several missed mortgage payments and an agonizing year on the brink of foreclosure.
"Money just got tight," says Miss Johnson, 25, who works in customer service at a telecommunications company. "I felt completely helpless. I got physically ill thinking about not having my home."
Unexpected troubles are puncturing the American dream for increasing numbers of people.
It's the flip side to the happy-homeowner scenario: Even with mortgage rates at record lows, mortgage delinquencies are increasing and home foreclosures have climbed to all-time highs.
According to data released last month by the Mortgage Bankers Association of America, 0.4 percent of loans entered foreclosure in the second quarter and another 1.23 percent were still in the process both unprecedented in the 30 years the group has been keeping track.
The biggest culprit: rising unemployment, with sinking stock portfolios, illness and easy financing also contributing.
The north-central United States, including layoff-hit manufacturing areas, topped all regions with 0.47 percent of loans entering foreclosure in the second quarter.
But the trend has left no area untouched. The South had the most mortgage problems as measured by payments 90 days or more overdue, nearly 1 percent, while Nevada, Pennsylvania and Utah were among other trouble spots.
In the District and Maryland, 0.42 percent of loans entered foreclosure in the second quarter. In Virginia, the figure was 0.28 percent.
The Mortgage Bankers Association identifies the District, Maryland and Virginia as part of the South Atlantic region, where an average 0.44 percent of loans entered foreclosure in the second quarter.
All types of borrowers have succumbed, from six-figure earners who defaulted on $300,000 jumbo loans to middle-income couples buried in credit-card debt to first-time home buyers taking advantage of low rates to squeeze into houses.
The mortgage group's chief economist, Doug Duncan, said the main reason was the recession, which cost 1.8 million jobs and shrank many paychecks as overtime fell.
Also behind it was the proliferation of nontraditional loan programs that mushroomed as mortgage rates sank, enticing borrowers into taking on more debt than they could handle, often at brokers' urging.
More liberal lending practices have helped boost U.S. homeownership to 68 percent of all households, up from 63 percent a decade ago. But analysts say some of the innovative loans, including some for 97 percent and even 125 percent of the home's value, are showing cracks under the stress of an economic downturn.
"If Joe Sixpack can only scrape together 3 percent of the value of the home or less and has to borrow the rest, he's got no cushion if he loses his job or gets divorced," said James Croft, executive director of the Mortgage Asset Research Institute.
Not unlike when stocks started plummeting, the mortgage miseries have stirred panic among many distressed borrowers and prompted a sharp rise in demand for financial counseling.
"They're scared they're going to lose their house," says Melinda Wright, education director of Consumer Credit Counseling Service of Central Indiana, which doubled its typical mortgage delinquency workload to 30 appointments last month. "And they're blaming themselves. They say, 'I should have known better.'"
At Ask Susan, an online financial-advice column compiled by nonprofit Money Management International, foreclosure has become the most frequent topic among thousands of questions received, says Kim McGrigg, who co-writes the column.
A posting from a woman named Poncha begins: "I have fallen behind on the monthly house payment and the mortgage company calls me three or four times a week to ask me when I will send a payment. I want to rework the loan but they don't care. HELP!!!"
Still, analysts say there is no cause for national alarm about the foreclosure trend. San Francisco-based Loan Performance, which tracks mortgage loan data monthly, says foreclosures may be flattening and recent loans are performing well.
But that was scant good news for people such as Miss Johnson, who ran into trouble making payments for her two-bedroom home after her son had ear surgery last year. She fell three or four months behind, battled to pay off other bills and finally got help from a foreclosure-prevention program at Lutheran Social Service of Minnesota.
After taking out a second loan with deferred payments, it still took a lengthy fight to get foreclosure warnings stopped.
Miss Johnson said she wasn't prepared for tough financial times and got caught up in the home-buying rush, but added: "There should be something out there that says you have to have so much of a cushion before you can buy a home."
Staff writer Chris Baker contributed to this report.

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