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Subprime lending from the ground floor

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KAI RYSSDAL: We’ve heard a lot about the big names in subprime lending. Companies that made risky high-interest loans, often to home buyers with spotty credit records. Just today, People’s Choice Home Loans here in California filed for Chapter 11 bankruptcy protection.

But what about the people who took out those loans? RealtyTrac estimates more than half of recent foreclosure filings involved subprime borrowers.Others are struggling to keep their homes as their mortgage payments rise.

We sent Marketplace’s Jane Lindholm to Upland, Calif., about 35 miles east of Los Angeles, to see what subprime looks like from the ground floor.

JANE LINDHOLM: Sixty-five-year-old Frances Geary sits on a couch beneath photos of her nine grandchildren. A breeze is blowing in from the screen doors and the San Bernardino mountains rise up in front of her house.

FRANCES GEARY: I felt perfectly comfortable the minute I came here. This house has everything that money can’t buy: it’s a beautiful street, good neighbors, one son is five miles that way, and the other son is five miles that way. It’s home. It’s home.

But Frances Geary might lose her home. She can’t pay her mortgage, and the bank is threatening foreclosure.

Geary was enticed by the real-estate boom of the late 1990s. She thought she could make a quick buck flipping houses — buying them at low prices and selling them for more. She financed these houses with subprime loans, expecting that she’d be able to sell them before the rates rose too high.

GEARY: I had a very good credit rating, I had a very good mortgage on my own house and everything was making lots of money. And I think I just lost my mind a little, and saw that and felt I was going to make some money. To be very honest with you, I think a little greed got me.

Then the housing market began to slow. Geary’s properties languished on the market, and she couldn’t make the mortgage payments.

She refinanced her own home from a fixed rate mortgage to a subprime adjustable rate to free up some cash. Her monthly payments jumped immediately from $1,200 at the fixed rate to $2,100. Now they’re up to 2,800 a month. And that doesn’t count what she owes on the other homes in her name.

Geary faces foreclosure on three properties.

GEARY: I would like to blame the mortgage company, the broker, the people I was in business with. I would like to blame everybody. But ultimately it’s just the mirror. I was playing in a game I had no business playing in, with dollar amounts I had no business playing with.

Nathan Fransen is Geary’s lawyer. Sitting next to her on the couch, he says she’s not his only client who didn’t understand what she was getting into.

NATHAN FRANSEN: When values were going up drastically, it covered up a lot of things. There was bad loans being written, but nobody knew or cared because they were making so much money and it’s kind of like it’s the party, right? Now, we’re in the hangover phase.

Frances Geary has certainly had her fair share of headaches. She says she wishes she had asked more questions and made sure she understood all the forms she was signing.

GEARY: The other thing I have to say about a house: don’t fall in love. Don’t fall in love. I don’t think I fell in love with this house until after I had it. Now it would be hard to let it go. Because it has everything, you know, it has everything that I like.

In Upland, Calif., I’m Jane Lindholm for Marketplace.

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