As a widening crisis over nontraditional and subprime mortgages gone bad threatens to force millions of people out of their homes, Schlicke worries that mortgage brokers are well on their way to overtaking used car salesmen on the list of professions least trusted by consumers.

Jillayne Schlicke’s father used to tell her that mortgage banking was the "highest calling of all" because it involved helping people live the American dream of homeownership.

"I learned how to spell ‘mortgage’ when I was about 6 years old. It was on a flash card," said Schlicke, the daughter of two mortgage bankers and co-executive director of the Ethical Lending Foundation near Seattle.

As a widening crisis over nontraditional and subprime mortgages gone bad threatens to force millions of people out of their homes, Schlicke worries that mortgage brokers are well on their way to overtaking used car salesmen on the list of professions least trusted by consumers.

"We’re in ethical chaos in mortgage lending," said Schlicke, who followed in her parents’ footsteps and became a mortgage banker and now teaches classes for real estate agents, lenders and consumers on ethical mortgage practices.

"All you have to do is open up your spam (e-mail) bin and you see porn spam, and you see Viagra spam, and you see mortgage spam," she said, adding that the unethical behavior of a small minority of brokers was tainting the entire industry.

"It’s going to be a long road to climb out of that gutter."

After the housing market slowed in 2006 and more people fell behind on mortgage payments, the foreclosure stories became front-page news across the United States.

In the last three months of 2006, lenders began foreclosure proceedings on about one out of every 200 mortgages, the highest rate on records dating back 37 years, according to the Mortgage Bankers Association.

Some 1.5 million homeowners will face foreclosure this year, research firm RealtyTrac estimates.

"An American dream has become an American nightmare," said Howard Pitkin, commissioner at the Connecticut Department of Banking.

Many people accepted complex mortgages to buy homes that were probably out of reach, but deals such as 100-percent financing and adjustable-rate mortgages that initially carried low monthly payments encouraged excess, critics contend.

"The quality of the loan has everything to do with this crisis," said Josh Nassar, vice president for federal affairs at the Center for Responsible Lending in Washington.

Among the biggest culprits were the so-called "2-28" loans that offered low interest rates and payments for the first two years, but then spiked up. Many borrowers misunderstood the terms or thought they could refinance, and found themselves stuck with mortgages that they could no longer afford.

Nassar and others worry that the true cost of chasing the American dream is adding up quickly. They say soaring foreclosure rates will rip apart lower-income communities where a disproportionate number of those loans were written.

A study released this month by a group of fair housing agencies showed that the price of homeownership was often higher for black and Hispanic borrowers.

The groups examined lending in six major cities including New York, Los Angeles and Chicago and found that black borrowers were 3.8 times more likely to receive higher-cost home loans than were white borrowers. Hispanic borrowers were 3.6 times more likely.

"There’s a lot of pain that’s occurring and will occur because home ownership was sold at too great a price," said Kevin Stein, associate director of the California Reinvestment Coalition, one of the agencies that worked on the study.

John Taylor, president and chief executive officer of the National Community Reinvestment Coalition, said foreclosure not only devastates the homeowner’s credit rating, but also tends to lower the value of properties nearby.

"We’re not anti-subprime. There’s a role for them. They’re important. But these exotic, nontraditional mortgages that are designed to strip wealth need to be eliminated," Taylor said.

He wants lenders to restructure loans to help people stay in their homes, and has called on the Bush administration and Congress to amend rules governing the Federal Housing Administration so that the agency could refinance subprime borrowers’ loans that are in default.

For many, any changes would come too late.

Almas Sayeed, an economic policy analyst at the liberal policy group Center for American Progress, said borrowers going through foreclosure had little chance of regaining the financial footing they would need to qualify for another loan.

"This promise of home ownership starts to elude families that tried to buy a home, bought into a loan that they really couldn’t afford, and once they foreclosed, the possibility of owning a home again is really, really limited," she said.

Via Reuters