Who’s paying for the sub-prime disaster?

"IF THE loan officer had only explained to me what the borrowing entailed, I wouldn't have gotten suckered into it. The way it's going now, I'm on the verge of losing my home."

Those are the words of Martha Cueva, a Mexican-born single mother in Oakland, Calif., who says that she--like countless other people across the country--was tricked into signing a loan she didn't understand.

Cueva has lived in the U.S. since 1978 and saved for 20 years to buy her home. Originally, she took out a 30-year mortgage at a fixed interest rate. But in 2005, she decided to refinance to help her son through college and to buy a car. The new loan included a two-year teaser rate of 7.5 percent, but now, Cueva's monthly payments have spiked to nearly $2,000, and she is facing the real possibility of default and foreclosure.

"Oh my God, if I lose my home, it will be so sad," Cueva told the Athens (Ohio) News. "It will break my heart."

The mortgage crisis is dominating the headlines, with news of major banks writing off bad loans to the tune of about $110 billion. Last week, the turmoil on international financial markets led Federal Reserve Chair Ben Bernanke to announce a major cut in interest rates, and George Bush and leaders of Congress convened to haggle over the details of an estimated $140 billion economic stimulus package.

But the underlying question remains: Who will help people like Martha Cueva save their homes?

The $600 to $1,200 tax "rebate" checks being discussed as part of the stimulus package wouldn't help many borrowers make even one mortgage payment. Meanwhile, the crisis is only deepening as home prices fall, sales sag--and, month by month, more loans reset from low introductory teaser rates to make monthly payments much more expensive.

The pain is falling disproportionately on working-class families, particularly people of color.

In Baltimore, for example, the fastest-growing group of homeowners in recent years was single women with children--since 2006, they accounted for 40 percent of home sales. But nearly half of the mortgage loans they signed were sub-prime--loans given to borrowers with poor credit ratings and little or no money to make a down payment.

The sub-prime mortgages came with interest rates that are 2 to 5 percent higher than prime loans--but that was hidden by two or three-year periods of lower "teaser" rates, during which payments typically covered just the interest, and none of the loan itself.

All together, sub-prime loans add up to $2.5 trillion since 2000. They account for only about 13 percent of total outstanding loans, but are 55 percent of foreclosures since the mortgage crisis began. The Center for Responsible Lending estimates that one in five sub-prime home loans will ultimately end in foreclosure.

"When I bought my house, it was the American Dream," Kue McIntyre, a 33-year-old single mother of three in Baltimore, told the New York Times. Now, though, the interest rate on her mortgage has jumped from 8.35 percent to 13.25 percent. And because her lender insisted that she use her savings to pay down a car loan before buying the house--a common demand on sub-prime loans--McIntyre had no reserves to help her with the mortgage after she lost her job.

"I feel they had me from the start," McIntyre said. "I was eligible for money as a first-time home buyer and a state employee. Nobody told me about any of these."

There are similar stories across the country. In Philadelphia, Regina Taylor saw the monthly payments on her $78,000 adjustable-rate mortgage jump from $515 to $1,010. In Algonac, Mich., Ruth Knight saw the interest rate on her loan jump from 8.7 percent to 10.5 percent and cap out at 13.9 percent.

"At first, I felt really bad, like I just couldn't handle money," Knight told the Port Huron, Mich., Times Herald. "You kind of feel like a failure. Then I have to remember, 'This isn't just me.'"

THE MAINSTREAM media's coverage of the crisis has often focused on borrowers who committed fraud to get loans. But this is a tiny part of the overall picture. The real fraud came on the other side.

Mortgage brokers--who are involved in about 60 percent of all mortgage loans--had a huge incentive to push borrowers into riskier deals. They received higher commissions, called yield spread premiums, on sub-prime loans compared to conventional mortgages--on average, brokers were paid 1.88 percent of the value of sub-prime loans, compared to 1.48 percent of conventional mortgages.

To get borrowers into sub-prime mortgages, brokers often fudged paperwork--inflating income and assets for borrowers who normally wouldn't qualify for any kind of mortgage, while encouraging other borrowers who qualified for prime loans to hide assets and lower their stated incomes to get sub-prime loans.

The boom in sub-prime loans--which accounted for 20 percent of all mortgages in 2005 and 2006, up from 5 percent in 2001--was the direct result.

The mortgage brokers were, in turn, under pressure to deliver so that sub-prime loans could be packaged into high-yielding mortgage-backed securities that were bought and sold by big investment banks, hedge funds and other investors. Today, these securities can't be sold for any price, and the banks and firms left holding the bag are having to announce huge losses.

"The mortgage companies made the decision at the highest levels to market these loans that are resulting in these high levels of foreclosures," William J. Brennan Jr. of the Atlanta Legal Aid Society told the Atlanta Journal-Constitution. "They could have made affordable fixed-rate loans to everybody...

"Look to the mortgage companies. They're responsible for the fallout. They're responsible for the harm to the communities. If the mortgage industry had self-regulated and decided not to make loans to people who couldn't afford them, none of this would have happened."

The effects of the crisis are spreading beyond homeowners. Thousands of rental tenants are being evicted or are losing heat and utilities because the homes they rented are owned by buyers who got them using sub-prime loans on which they've defaulted.

Groups like ACORN and Legal Aid have been working in cities across the country to help people refinance mortgages and escape defaulting on loans, and some politicians have proposed freezing mortgage interest rates and putting a temporary moratorium on foreclosures. But none of that has yet stopped the wave of people losing their homes.

For the homeowners most at risk, there are few options. With housing values plummeting and lenders tightening requirements, it's impossible to refinance. There's a glut of houses on the market, so it's difficult to sell. Existing state and local programs to help those in trouble have restrictions that exclude many.

That's why the crisis is likely to grow even worse through this year--with estimates ranging as high as 3 million homes in foreclosure proceedings by the end of the year.