Jose Pomales stands on his back porch with his 7-year-old son, Jordan, and looks out over his big backyard.
Eight years ago, he moved into his modest ranch house in Boston's Hyde Park neighborhood and has since spent time and energy on landscaping and fixing it up.
Pomales has a solid job with a local housing authority, and he and his wife's combined income is around $65,000 a year. He says he has always paid his mortgage, but two years ago, Pomales refinanced and got a loan from New Century, a lender that has since gone under after writing too many loans that customers didn't or couldn't pay back.
The monthly payment on Pomales' $300,000 loan started at about $2,100. Then, the payment increased by more than $300 a month, and will soon be adjusted to about $2800 per month. In another six months, his mortgage payments will be increased even more.
Pomales says he had no idea how much his monthly payments would go up and is now unable to afford his home. His only option, he says, will be to either try to sell the house or just let the bank take it. Recently, he received a foreclosure letter in the mail.
"This is my home, and I don't want to let somebody just take what we've worked hard and sweated for. I mean it's not the biggest house. It's maybe not the most glamorous house. But it's my home," he says.
Many More in the Same Boat
Most subprime loans are fixed for two years, adjustable for 28, and even if overall interest rates stay flat, these loans still adjust up much higher than their initial rates when they hit their "reset date."
Analysts say that in September 2005, the subprime lending boom started hitting its peak. Now a bigger wave of rate resets could mean a flood of foreclosures.
Susanne Mistretta, a managing director with credit rating agency Fitch Ratings, says that the borrowers who have loans adjusting now are much more exposed to the rate reset than the borrowers who had loans adjust prior to this point. She says falling house prices and stricter credit standards are making it harder to refinance out of these loans, which were written during a time when lending standards in the mortgage industry were getting out of control. Many lenders were processing loans without documenting borrowers' incomes, and some loans were made for more than the houses are now worth.
Just last week, Fitch changed its default forecast for one subset of subprime loans, saying 50 percent more loans will default than they previously predicted.
A Historic Number of Foreclosures
More economists are predicting that a historic number of people will lose their homes.
"I foresee several million. I think that we could easily see 2 to 3 million people lose their homes and go back to renting, basically," says Bill Wheaton, who runs MIT's Center for Real Estate.
He says that some of those affected will be people who paid too much or borrowed too much against their homes. If their payments are rising and the houses are worth less than they owe, they'll just walk away, Wheaton predicts.
Many others facing possible foreclosure are longtime homeowners, like Jose Pomales, who say they just didn't understand what kind of loan they were getting into when they refinanced and who are now stuck.
Running Out of Options
Jose Pomales has tried unsuccessfully to refinance his mortgage, which is now managed by Chase Home Finance. He says he has been asking Chase to work with him and give him a more affordable interest rate but says they have refused.
Chase won't discuss individual customers, but a spokesperson offered this statement:
"Chase works with customers individually and uses a number of strategies to help borrowers facing financial difficulties, including refinancing and considering all options available to modify loans."
Other lenders are making similar pledges to modify or refinance customers who are stuck in loans with rapidly rising rates they can't afford, but housing advocates say that, so far, they are not doing it very often.
Pomales worries that without refinancing, he will soon be forced to leave his longtime home.
"We're just regular middle-class, hard-working individuals, and you hate to see things taken away when you're working hard for it," he says.