For Some Subprime Borrowers, Few Good Choices

Myriam Philemond says she knew almost from the start that she and her husband could not afford the nearly 0,000 house they bought in South Boston more than a year ago.

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After falling behind on payments in July, she is considering whether to turn the house over to her mortgage company because she cannot refinance and modifying her loan will not help. "We are stuck with a house that we can't afford," she said.

As problems with subprime mortgages have escalated, officials on Wall Street as well as in Washington have urged lenders and the government to step in and cushion the blow to troubled borrowers and find ways to enable them to remain in their homes.

That may not be possible in many cases.

Like Ms. Philemond, some will not be in a position to keep their homes because the properties they live in - bought during the boom in housing prices - are no longer worth what they paid. Some properties may be worth still less because the price was previously overstated. Many borrowers' incomes, which were often not verified, are insufficient to cover house payments, taxes, home insurance and other requirements.

"There is no way they can keep their homes," Lillie Searcy, executive director of the Mattapan Family Service Center, said about borrowers like Ms. Philemond, whom she has been helping. "It's impossible."

And in an unusual twist, the process of packaging and reselling home loans to investors - known as securitization, which has provided much of the cash that fueled subprime lending - has also made it harder to modify debts that go bad.

At the end of last year, more than 2.6 million home loans were either past due for more than 30 days or in foreclosure. About 40 percent of them were made to people with weak, or subprime, credit. Most economists predict that the number of troubled loans will continue to rise this year as more mortgages are adjusted to higher interest rates and home prices decline further.

Last year, more than 37 percent of subprime loans were made without verification of borrowers' incomes, up from 15 percent in 2000, according to an analysis by JPMorgan Chase. Also, a third of borrowers took out a second mortgage, up from 6.8 percent in 2003, suggesting that they did not have enough money for a down payment.

For these borrowers, the best alternatives, according to some housing specialists, may include short sales, in which a lender accepts a sale for less than what is owed on the house, or a deed in lieu of foreclosure, where a lender takes ownership of a house instead of full payment of the mortgage.

Rising default rates have thus far had a modest impact on the overall economy, but economists fear that the problems could intensify if a broader range of borrowers, including those with stronger credit, start falling behind on payments. A big increase in the number of homes for sale, because of rising foreclosures, would put more pressure on prices and limit home buying and consumer spending.

The Senate Banking Committee will hold a hearing on problems in the subprime market today in Washington. Senator Christopher J. Dodd, Democrat of Connecticut and the committee's chairman, has suggested that the federal government may need to bail out homeowners in trouble, and some housing advocacy groups are calling for a moratorium on foreclosures.

Ms. Philemond, a receptionist, and her husband, who owns a sign business, have made several payments to try to catch up on past-due payments, but they are still thousands of dollars behind. She is unsure that they will be able to pay off the money overdue, let alone make the regular ,800 monthly payments on two mortgages. The interest rate on her primary mortgage, now 6.99 percent, will become adjustable early in 2008, making the payments even higher.

Ms. Searcy said it appeared that the couple's income had been overstated on the mortgage application by brokers who had helped them buy the house and get a loan from WMC Mortgage, a unit of General Electric.

WMC said that it had granted Ms. Philemond the loan because the information on her application indicated that she and her husband had income of more than 0,000 a year, savings exceeding ,000 and had a tenant.

This month, the company restricted the use of loans in which borrowers state their income without verification.

A spokesman for General Electric's finance division, Robert J. Rendine, said, "The industry is becoming aware that because of the stresses that we are seeing, issues like this are being exposed."

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