Trying to survive a sub-prime squeeze

Bad financial decisions and poor timing have landed Alicia Cardenas smack in the middle of the nation's sub-prime mortgage mess.

The single mother of three could qualify only for a high-interest loan when she refinanced two years ago to pay off a home equity credit line and her share of a divorce settlement.

But her hefty mortgage payment puts Cardenas, 45, in a financial hole each month. She can't save for her children's college education or her retirement. And now the loan threatens her efforts to provide a comfortable home for her family, including her 79-year-old mother.

Next month, the financial pressure will mount when the adjustable rate on Cardenas' $410,000 mortgage increases, raising her monthly payment by $462 to $3,291.

"I'm scared to death just thinking about it," Cardenas said. "If it increases, I'm dead in the water."

Jennifer Hartman, a certified financial planner with Greenleaf Financial Group, said Cardenas got into trouble because she didn't take the time to understand her finances or the ramifications of her sub-prime refinancing.

"The loan should have never been made, and she should have never taken it out because she couldn't afford it in the first place," Hartman said.

Cardenas is one of millions of Americans with risky credit who took out adjustable-rate loans that offered low teaser rates for a year or two before ratcheting up sharply.

So-called sub-prime loans have been resetting to higher rates, tipping already tenuous borrowers into default and roiling the economy. While the nation's regulators and lawmakers grapple with the sub-prime meltdown, Cardenas lives the financial reality of it.

'An albatross'

Her mortgage gobbles up more than half of the take-home pay from her $80,000-a-year job as a human resources manager for a dairy. She has only $590 in savings and retirement funds, receives $300 a month in child support and owes nearly $8,000 in bills. Each month, she finds she needs $600 to cover expenses until her next paycheck, so she takes out pay-day loans.

"It's an albatross around my neck," Cardenas said of the mortgage.

More than a decade ago, the future seemed much brighter. A high school graduate, Cardenas was the first in her family to own a home when she and her former husband bought a two-bedroom house with a sunny den and a big backyard in a neighborhood crawling with kids.

"We were happy," Cardenas said. "We felt comfortable and safe."

But the couple burdened themselves with more mortgage debt by using their house like a piggy bank. Tapping the rising equity, they refinanced to pay off credit card debts, take vacations and remodel.

Two years after buying the house for $123,000, they refinanced for $250,000. With the money, they paid off $30,000 in credit card debt, $20,000 in car loans and took a vacation to Guadalajara.

Three years later, they took out a $50,000 home equity line of credit, adding two bedrooms and a bath.

"She fell into the boat of people who thought the value of their home would keep rising," Hartman said.

After the couple separated three years ago, Cardenas wanted to keep the home, mostly for emotional stability. But that's not the best financial move because it's often difficult to sustain a home on a single income, Hartman said.

Falling behind