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RENEE MONTAGNE, host:

On Fridays we talk about personal finance, and today we turn to a woman who faces losing her home just a year after refinancing it with a subprime mortgage. It all started with an ad she saw on TV touting an easy home loan that would consolidate her debt. At 77 and retired, Jennie Halliburton needed the help. Her husband had passed away and left her with a mountain of bills.

Ms. JENNIE HALLIBURTON (Resident, Philadelphia): His medical bills, telephone, gas, electric - he had really left me with a large shopping bag of problems.

MONTAGNE: In refinancing her Philadelphia home, Jennie Halliburton's original $60,000 mortgage ballooned to a $108,000. She quickly fell into trouble with her lender.

Allan White, who works with a community legal center in Philadelphia, is helping her. And they both joined us to talk about her experience after she answered the ad.

Ms. HALLIBURTON: They came to the house and when I asked them what would it cost a month, and they says, oh don't worry, it will not be very much, because I was a senior citizen. Yeah, about a $100 more.

MONTAGNE: So like 800 or something.

Ms. HALLIBURTON: Yes. And I - at that time to get out of debt I accepted it.

MONTAGNE: And your income at that time, would $800 have been easy for you to pay off?

Ms. HALLIBURTON: No, it wouldn't have been, but I had no choice.

MONTAGNE: So that was a stretch anyway.

Ms. HALLIBURTON: Yes. Next thing I know when I had to pay the first payment, it was $1100 and I couldn't understand why they took so much.

MONTAGNE: Allan White, you're a lawyer. Our representative is Jennie Halliburton. How many cases like this do you see?

Mr. ALLAN WHITE (Attorney): I think it's a very typical situation. This lender did not include an escrow for taxes and insurance. Her initial payment, just for principal and interest, was $922. If you add taxes and insurance, it was really 1,100, which is certainly more than half of her $1,700 Social Security check. And that payment is scheduled to go up next year in 2008 to about $1,300, which is of course absurd.

MONTAGNE: Ms. Halliburton, did you realize the loan was going to go up after two years?

Ms. HALLIBURTON: No, I did not.

MONTAGNE: Did they tell you though?

Ms. HALLIBURTON: No, they did not.

MONTAGNE: Was it written in the loan documents that you signed?

Ms. HALLIBURTON: I did not see that.

Mr. WHITE: Can I just add something? I think it's really unfair to say to a homeowner or a consumer, you should be reading your documents in determining that you have a 228 adjustable rate loan without a tax and insurance escrow that creates the following risks. You know, that's a very sophisticated analysis that's required to understand how you're being put in a situation of an inevitable foreclosure.

MONTAGNE: Right. I understand those loan documents are 20-pages long and small print and all that.

Ms. HALLIBURTON: It was 31 pages.

MONTAGNE: Well, it sounds like the loan, as you describe it, and as Ms. Halliburton describes it, sounds like the loan was a recipe for foreclosure or failure.

Mr. WHITE: Absolutely. It was underwritten based on her real income; they knew what her income was. And right on the application it shows that her payment at the fully indexed rate will consume close to 70 percent of her income.

MONTAGNE: But what would be in it for the lender?

Mr. WHITE: Origination fees and gain on sale income.

MONTAGNE: Origination fees, yes, but gain on sale?

Mr. WHITE: Well, one of the problems, Renee, is we're not dealing with banks anymore. These loans are originated by the companies that sell them at premium because of the interest rate. So Ms. Halliburton was paying on an initial interest rate about nine and a half percent. And the difference between her interest rate and the prime rate results in these loans being sold at a profit.

MONTAGNE: So where to from here?

Mr. WHITE: I've spoken to the lender and they have expressed a genuine interest to try and resolve this. And I take their assurances at face value. We'll attempt to negotiate something. But there aren't enough of us - housing counselors and legal services lawyers - to deal with the number of loans that we're going to be faced with in the next year or two. But we're not going to let Ms. Halliburton lose her house.

MONTAGNE: Well, thank you very much, both of you, for joining us and telling us your story.

Ms. HALLIBURTON: Thank you very much.

Mr. WHITE: Thank you.

MONTAGNE: Allan White is with community legal services - a legal center for low-income residents. Jennie Halliburton is retired and lives in Philadelphia.

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