RALEIGH - Margaret Pope owned her home outright for 25 years before she took a loan arranged by a Fayetteville mortgage broker in 2004. The monthly payment was $782. Her monthly income, a government check, was just under $1,000.
"She was 78 years old and she had dementia," her daughter, Carla Merritt, told a special N.C. House committee on Tuesday. "There was never any ability to repay the loan, she was certain to lose the home -- and for this wonderful service, she paid a fee."
The committee, tasked with limiting the number of state residents losing homes to foreclosure, heard Tuesday from people affected by foreclosure. They included Patricia Hinton, featured in the January Observer series that spurred the committee's creation.
The testimony painted a consistent picture: People are getting loans they can't afford. Many lacked the information to make good decisions. And the law provides little shelter for people who make bad ones. Once the foreclosure process begins, it is very hard to stop.
"I want them to help me and my neighbors and other people," said Hinton -- and by the end, the legislators seemed primed to try.
They will vote next week on proposals for several minor reforms that would be considered by the full House when it convenes May 9. They are also likely to propose funding for a study of deeper reforms.
Among the proposals on the table:
• Include in the public record for each loan the name of the broker who arranged the loan, the appraiser who valued the home, and the agent who conducted the closing. This would allow regulators and the public to look for patterns in foreclosures.
• Require counseling for some people before they take loans, such as people buying a home for the first time or people who only qualify for loans with high interest rates. The state could require the lender to cover the cost.
• Change the legal process of foreclosure. Proposals include mandatory arbitration, where a borrower could present evidence of lender misconduct or agree to a new schedule for repaying debt. The current system only allows technical evidence about the loan itself.
• Increase funding for enforcement of existing laws. The N.C. Department of Justice is requesting $650,000 for seven new positions devoted to investigating mortgage fraud.
The number of foreclosures filed by lenders against N.C. residents tripled between 1998 and 2003. The damage is worse in Mecklenburg, the hardest-hit county in the state.
Foreclosures happen when borrowers miss mortgage payments and the home is sold to repay the lender. The numbers are rising largely because of an explosion of new loan products since the mid-1990s. Money is easier than ever to borrow -- but high interest rates and hidden fees can make payback next to impossible.
"They no longer require you to have the ability to repay a loan in order to get a loan," said Merritt, a Fayetteville accountant who now pays her mother's mortgage.
The industry disputes that characterization. Lenders say that making loans to riskier borrowers has allowed millions of Americans to purchase homes for the first time.
They attributed most foreclosures to turmoil in borrowers' lives. And in appearances before the committee most argued against sweeping new laws, saying much of the problematic conduct is already illegal, and the focus should be on increased enforcement.
But committee members are increasingly convinced that the industry, its virtues notwithstanding, needs more supervision. Over the last three months, they have gone from asking basic questions about mortgages to sharp questions about the need for change.
Bill Rowe of the N.C. Justice Center, which advocates for change, said he had watched the transformation with interest. "Now we'll see if they can take it and sell it," he said.
