News your connection to The Boston Globe

Homeowners on borrowed time

DURING THE housing boom in the first half of the decade, mortgage lenders recognized that even people with meager bank accounts and subprime credit can be lucrative customers. So lenders competed for business by offering no-documentation loans, interest-only loans, and optional-payment loans. Though these loans can expand access to homeownership and the wealth creation that accompanies it, they also carry high costs and risks. As interest rates jump higher on adjustable-rate mortgages, many homeowners are in trouble.

With the number of foreclosures on the rise, more policy makers are waking up to the implications for society as a whole. Even as Governor Deval Patrick was suffering the political fallout of his ill-advised phone call on behalf of a subprime lender, his administration was endorsing sensible measures to help borrowers. These include licensing rules for most loan officers, an increase in the number of license examiners, and a fund to rescue homeowners who have fallen behind.

Other reasonable ideas come from a bill backed by affordable-housing groups and filed by Representative David Torrisi and Senator Jarrett Barrios. Among other things, it calls for a 30-day cooling-off period, during which those facing foreclosure proceedings can get back on track without having to pay high legal costs. And it would subject mortgage lenders to rules akin to the state's Community Reinvestment Act, which directs banks and credit unions to serve the entirety of their communities -- not just the wealthy areas. Low-income customers would gain better access to reputable financial institutions, reducing the need to rely on less stable (and often less scrupulous) lenders.

If adopted, all these measures will make it harder for homeowners to over-borrow in the future. The post-boom recriminations among lenders may make them more cautious, too; some investors who bought up subprime mortgages from lenders want their money back now that borrowers can't pay their bills.

Still, the state can do even more to help bring current holders of risky mortgages back from the brink of disaster, and an initiative by the City of Boston offers a sophisticated model. The city is identifying initial lenders whose customers face foreclosure at higher-than-average rates; such lenders presumably write riskier loans. Officials are warning those companies' customers to quickly seek out organizations that can help them renegotiate their loans. Lenders aren't necessarily eager to foreclose, because it involves significant legal expenses, and the trouble and risk of selling repossessed homes in a down market.

If cash-strapped borrowers can hold on, they can shore up their place in middle-class life. Widespread foreclosure doesn't just affect individual families; it can bring entire neighborhoods down. Keeping struggling homeowners afloat is in everyone's interest.