Mortgage meltdown sinks more than those on edge

LOS ANGELES (Reuters) - Unlike many borrowers who took out subprime loans, Andy Sobel had good credit, a decent job and modest savings, but he needed to stretch to buy a home in the white-hot San Diego housing market in 2004.

Three years later, Sobel has lost his home and his savings, and he faces a big tax bill as a consequence of a failed subprime mortgage held by Countrywide Financial Corp. he says he should never have been written.

"You never think that this could happen to you. You feel like an idiot," said Sobel, 48, who has a doctorate in education. "You fall down and they stab you."

The subprime mortgage meltdown is hitting more than people living on the financial edge.

Thanks to the frenzy of a market seeking to invest in the high-interest loans, incentives for brokers to encourage the sale of those loans and a housing market booming beyond the reach of many, many people with good credit were sucked in, consumer advocates say.

"Once Wall Street entered the marketplace of housing ... the typical mainstream lending community was not prepared for those types of loans, the volume and the greed it would create," said Lori Gay, president and chief executive of Los Angeles Neighborhood Housing Services.

Gay said she has begun meeting with lenders, at their request, to try to stave off what could be "the biggest foreclosure bloodbath that we've ever had."

"We are seeing every age group, every single income level now, people with similar problems, and I haven't seen that in my career," she added.

BLOODBATH

Sobel, who works for a nonprofit community group, said that when he found it difficult to qualify for a loan big enough for a slice of property in San Diego, his independent broker pushed him to take out a popular adjustable mortgage with a two-year low fixed rate, known as a "2-28," as well as a second mortgage to buy a $240,000 condominium.

He knew payments on the loan, originated by Express Capital Lending and bought by Countrywide, the largest subprime lender, could rise, but was told he could refinance. Countrywide did not initially comment on the case.

The introductory rate was affordable, but Sobel began to worry as interest rate hikes, falling home prices and a glut of condo conversions hit the San Diego market.

"I started to look to refinance. I called my first and second (mortgage lenders) and said, 'I'm going to be in trouble, what can you do for me?'" he said.

Countrywide's refinance offer was more than he could afford, he said. His broker advised him to take out a negative amortization loan that would add $300 each month to his principal and "ride it out for a few years" until the market recovered.

"I said, 'Are you crazy?' I started really worrying," he said. Sobel is not alone.

Gabe del Rio, homeownership director at Community Housing Works in San Diego, worked with Sobel and said borrowers with good credit like his often got in over their heads when brokers pushed them toward "stated income" mortgages that had looser guidelines for proving income.

IN OVER THEIR HEADS

"Anyone who had a higher FICO (credit) score ... was moved into a stated loan product in which they then qualified for (a higher) purchase price, putting them in above their head," del Rio said.

Delia Dee, a municipal analyst, said she refinanced her home with Countrywide to withdraw $200,000 to help her father buy a home of his own in a process she found suspicious.

"My (income and tax) information was wrongly represented on the (application) but I asked and asked and they said, 'This is okay because of your good credit,'" Dee said.

Then, unexpectedly to her, the payment nearly doubled in the second month of the mortgage. She has since negotiated terms to prepay and will refinance -- again.

"I would rather get out of it and not have to deal with Countrywide," she said.

Just over a fifth of all mortgages in California are subprime, according to First American LoanPerformance, a data and analytics unit of First American Corp.

Some 10 percent of Florida mortgages are subprime and 6 percent of those in New York, it said.

The nonprofit Center for Responsible Lending predicted the subprime failure rate would reach 22.8 percent in Santa Ana, Anaheim and Irvine, 22 percent in Los Angeles and Long Beach, and 25.2 percent in Bakersfield.

As for Sobel, the banks began foreclosure proceedings in December. Both lenders have agreed to allow Sobel to sell the condo at a loss of $60,000 -- on which he has to pay taxes.