Nontraditional Lending

Nontraditional lending

Mark Cady, a regional vice president at Market Street Mortgage in Houston, said aggressive lending programs have soared in recent years, putting more consumers at risk of defaulting on their loans.

Loan programs for those who have little saved for a down payment, or want to minimize their monthly payment, have spread through the mortgage industry.

Zero-down payment, interest-only and other forms of adjustable-rate programs have been rampant across the U.S.

Nationally, about 34 percent of loans made last year had adjustable rates, according to the Mortgage Bankers Association. These types of loans often carry low starter, or so-called "teaser," rates that often expire after a few years.

They've allowed borrowers to buy bigger, more expensive homes they normally wouldn't be able to afford. But when rates go up, monthly mortgage payments can jump significantly.

"That's what's going to hurt us now," Cady said. "And I think the foreclosure problem is going to get worse."

Locally, 7.8 percent of the home loans in 2004 were interest-only, compared with 30.9 percent nationwide, according to Loan Performance, a San Francisco research firm.

Lenders are also targeting buyers who might not have been able to qualify for a home in the past. Wells Fargo Home Mortgage in Houston is offering loan programs tailored to first-time homebuyers with "nontraditional credit histories."

But it's not just new borrowers at risk.

For Tina English, a dissolving marriage was a factor.

After English's husband moved out of their Spring Branch-area home last year, neither spouse made the mortgage payments, which already were past due.

Months later, the bank foreclosed on the three-bedroom, ranch-style home in the Shadow Oaks neighborhood.

English is now living in an apartment near the Medical Center with her dog and cat while she goes through a divorce. "It kind of chips away at your dignity or self-pride," said English, 43. ''It makes you not want to walk out your front door."

Purva Patel contributed to this report.