HOME IS WHERE THE DEBT IS

While federal regulators have yet to react to problems in the subprime mortgage market, Gov. John Baldacci recently signed a law strengthening Maine’s predatory lending laws. This will help borrowers in the future, but not those facing ballooning mortgage payments at a time when home prices are falling. For now, they must hope their lender is willing to help.

Subprime mortgage loans, which typically have higher interest rates and are offered by mortgage brokers and other nonbank lenders, are meant to serve borrowers who don’t qualify for traditional loans because of credit problems. According to the Mortgage Bankers Association, subprime mortgages account for 60 percent of foreclosures, but only 13 percent of all outstanding loans.

Last week, federal regulators said there was no reason to move quickly to fix problems because the market may correct itself. This might be an overly optimistic view.

The most recent delinquency survey by the Mortgage Bankers Association showed that the percentage of subprime mortgages in delinquency and foreclosure was much higher in 2002 than now. Within a year, the rate dropped precipitously, largely because home prices were rapidly rising, which gave borrowers facing delinquency or foreclosure the opportunity to refinance these mortgages or to sell the home at a profit.

The hot housing market contributed to the current problem by encouraging some homeowners to borrow more money than they could repay. Now that housing prices nationwide and in parts of Maine are flat or falling, for many the option to sell or refinance is gone.

Home sales here in April were more than 12 percent lower than a year ago, according to Maine Real Estate System Inc. Although the statewide median selling price in April was nearly 6 percent higher than a year ago, many parts of the state saw prices fall. Median prices dropped nearly 20 percent in Washington County, more than 7 percent in Piscataquis and more than 3 percent in Hancock County when comparing the period of Feb. 1 to April 30, 2006, to the same quarter in 2007.

The New England Economic Partnership projects the region’s home prices will remain flat through 2010. Without the added equity from rising home prices, many borrowers can’t refinance and now face foreclosure. According to the mortgage bankers’ survey, Maine’s foreclosure rate for subprime loans in the first quarter of 2007 was above the regional and national averages.

Some lenders, such as Countrywide Financial Corp. and Citigroup Inc., as well as Fannie Mae and Freddie Mac, have said they will work with borrowers facing problems to modify loan terms.

This is a positive step that, coupled with new restraints like Maine’s on predatory lending, can help restore the balance between helping people buy a home and saddling them debt they can’t repay.