WASHINGTON — Vicki Miller bought her childhood home in Altoona, Pa., from her mother's estate for $32,000, using a nice, traditional mortgage from the local savings and loan.
Seven years later, her debt has more than doubled, her once-significant equity has shrunk to zero and she's behind on her payments. The lender has begun to threaten foreclosure.
"I grew up here. My son grew up here. And I had hoped my grandchildren would grow up here," Miller said woefully.
Miller said she was persuaded to refinance her mortgage twice into sub-prime loans she didn't really understand, along with taking out a second mortgage. As such, she reflects what experts say is the true face of the sub-prime mortgage debacle.
Discussion of the problem often focuses on first-time home buyers who stretched to buy homes they couldn't afford. But experts who've crunched the numbers say 90% of people who took out sub-prime loans from 1998 to 2006 were already homeowners.
Many, like Miller, had conventional, prime loans that were well within their means. What often got them into trouble was that they refinanced their mortgages without really understanding the terms and without realizing that the sales pitches and loan documents were sometimes deliberately opaque to snare the unwary.
The result is thousands of cases like Miller's, in which the damaging outcome is clear but it's very difficult to figure out how it happened or exactly who's to blame.
"I should have just stayed with the loan I had. I realize that now," said Miller, who earns a modest income as an office worker. "I'm not mortgage smart. I've since become mortgage wiser."
Lawmakers debating a mortgage rescue bill have spent a great deal of time trying to make sure that they don't reward careless or greedy mortgage holders. But lawyers working with troubled borrowers say few of them were trying to finance outrageous lifestyles.
Most were like Miller, they say, existing homeowners who found themselves in need of money and responded to aggressive advertising for refinancings.
"There's this myth out there that this was a bunch of people overreaching," said Patrick Cicero, a lawyer with MidPenn Legal Services in Harrisburg, Pa., who represents low-income homeowners who are facing foreclosure.
"But the vast majority of these loans were refinancings," Cicero said. "These were elderly people trying to fix up their homes. These were people lured in by promises of lower monthly payments and the consolidation of their debts who didn't understand they were putting their homes at risk."
