WASHINGTON -- During the recent U.S. housing boom, mortgage lenders touted so-called exotic mortgages that allowed people to buy houses they could not otherwise afford. Now those lenders are bracing for the not-so-happy story of borrowers like Jesline Jean-Simon.
The Miami woman bought her two-bedroom condo a year ago on a 3 percent adjustable rate mortgage with flexible payments.
When home prices in the city were blasting off two years ago, Jean-Simon was sitting pretty.
But now prices have eased and she works three jobs just to manage a mortgage that has ballooned into interest rates of around 10 percent.
"I don't sleep much," the 35-year-old says about her round-the-clock work schedule. "But the first thing that I pay is my mortgage because I don't want my credit to go bad."
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A mortgage survey due on Wednesday is expected to show that more and more Americans are in danger of losing their homes. The quarterly report from the Mortgage Bankers Association is also expected to show that the same mortgage products that helped send the housing market into the stratosphere are now weighing homeowners down.
In a hint at Wednesday's data, October saw more foreclosure actions than any other month this year according to RealtyTrac, an online marketplace for foreclosure properties.
"One way or another, the industry is going to get a black eye," said John Taylor, president of the National Community Reinvestment Coalition, which promotes equal access to credit. "There will be questions about tricks, fraud and whether these loans should have been made in the first place."
Many of those questions will come from the media, Taylor said, but the lending industry could face more than bad headlines as regulators and lawmakers weigh in.
In October, federal bank regulators tightened underwriting rules on "exotic" mortgages. In their sights were payment-option and interest-only mortgages that let borrowers lower their interest payments for a time but can deliver a kick later in the life of the loan.
And the industry could be in for worse than regulatory scrutiny next year when a new team of Democratic lawmakers like Barney Frank, the incoming chairman of the House Financial Services Committee, begin to consider predatory mortgage lending legislation.
Frank favors a national standard and the uptick in delinquencies expected Wednesday will strengthen his argument, said Howard Glaser, an independent mortgage industry analyst in Washington.
"These stats are an open invitation for a Congress with an agenda of consumer interest," he said. "I don't think (lawmakers) will ignore the spike in delinquencies."
But there is still a chance for lenders to take control of the issue, said Kurt Photenhauer, a top lobbyist for the Mortgage Bankers Association.
"I think that we can make a pretty convincing argument that we want people to stay in homes," he said. "We get no benefit from people defaulting."
Still, he said, lawmakers might get pushed along by the coming headlines about defaults and people losing their homes. If Wednesday's data shows a serious uptick in delinquencies, he said, "our arguments get harder."
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