In the heady days of the US real estate boom, it seemed like a safe bet to use her house as collateral for a loan.
Today, Sharon Edwardsen risks losing her Staten Island, New York, home, trapped by spiraling payments.
Edwardsen, a 47-year-old assistant optician, was tempted to take out a special high-risk loan targeted at people with low credit ratings. Today her monthly repayments have soared to US$2,800, yet she only takes home US$1,600.
She is among 2.2 million people across the US who risk forfeiting their homes by the end of the year as they struggle to meet monthly repayments swollen by rising interest rates, and triggering fears that a financial crisis could sweep US lenders.
"I'm panicking every day. I'm not sleeping because I'm worrying. This house has been in my family forever and I don't want to lose it. But I can't make the payments they are asking me for," she told reporters.
In 2005 these so-called subprime mortgages, offering a short-termed fixed interest rate which then converts into a variable rate of about 12 percent, accounted for some 20 percent of all US mortgage deals.
TOEHOLD
As the real estate market boomed, they enabled some of the country's poorest citizens to get a toehold on the property ladder.
Some of the loans dubbed "ninas" for "no income, no assets," were seen as an innovative way for people to realize the dream of owning their own home.
But now as interest rates rise, one in five borrowers of these high-risk exotic loans is set to default and see their homes seized by creditors.
"People don't understand that the loan is going to go up after two years," said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
BAD LENDING
"In many of these cases, the lender lends money without regard to whether they [the borrower] will be able to repay the loan," he said.
During the boom years, when the repayments got too high, home owners could even refinance their loans borrowing against the increased value of their house.
That's exactly what Edwardsen did, remortgaging her home three times between 2002 and last year.
Each time she got into difficulties, her mortgage broker would offer a new deal. From an original loan of US$103,000, she now owes the credit company some US$285,000 even though her monthly income has remained the same.
TAKING ADVANTAGE
"They took advantage of the fact that I was so desperate that I needed it. I told her [the broker] I had trouble with it. So she said in three months `we're going to do this again. We're going refinance you again and the money you take out, you're going to use it for your mortgage payments,'" Edwardsen said.
"Blinded by their own greed and the incredible amount of money that was being provided by Wall Street, mortgage companies were making loans that were abusive," said Ira Rheingold, of the National Association of Consumer Advocates which has taken up Edwardsen's case.
Some companies were filling out false applications to ensure the credit was agreed upon.
In Edwardsen's case, she became a doctor with a monthly income of US$6,000.
"They were making loans and they knew people couldn't afford it and they made them anyway," Rheingold said, blaming "greedy deregulation, failure of the government to intervene and Wall Street's incredible appetite for high risk bonds that would pay them a lot of money."
FEELING THE BITE
Mortgage companies including New Century Financial Corp are now beginning to feel the bite. On Monday, New Century said its credit was being cut off -- meaning it will have to declare bankruptcy in the next few days.
Last week as the shaky mortgage market dragged down the US stock market, US financial authorities toughened up conditions for approving such high-risk loans.
But for some, the move comes too late.
"I'm glad they are doing it, but most of the damage has already been done. They are closing the barn door after the horse and cows already ran out. It's too little, too late," Rheingold said.
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