Older California homeowners in loans they can’t afford

As the government presses lenders to modify mortgages, a large subset of distressed borrowers is being left out: older homeowners on low fixed incomes. Many of them are now facing foreclosure, say legal-aid advocates and AARP attorneys, because they were sold loans they could never afford, often fraudulently. Many of these homeowners had lived for decades in their home and had built up substantial equity, but had low incomes. This made them tempting targets for brokers who persuaded them to refinance their mortgages, telling them they could lower their monthly payments. Instead, many of these loans were loaded with fees and exploding interest rates and quickly became unaffordable. These borrowers’ incomes are often so low -- many are living solely on Social Security -- that few qualify for mortgage-relief programs. Even if lenders agree to reduce the interest rate and stretch out the repayment period, strategies at the heart of the Obama administration’s antiforeclosure guidelines, ‘they won’t get payments low enough,’ says Tara Twomey, an attorney with the National Consumer Law Center. Hundreds of thousands of people in once-hot markets such as California’s Central Valley fall into this camp, say housing counselors. Often the only way to keep these people in their homes is if lenders rescind the fraudulent loans or reduce the principal, steps most are unwilling to take. The U.S. House of Representatives has endorsed legislation that would allow bankruptcy judges to modify or rescind loans even if lenders are unwilling. But lenders oppose the measure and the legislation has stalled in the Senate.