With four children and an annual income of $38,450, the Wilsons feared that dream was out of their reach, especially with Wilson's health problems and the family's past credit problems. So the Wilsons were excited when their home builder found a lender willing to help.

But soon the Wilsons were shelling out $14,400 annually in mortgage, insurance and taxes. That was 37 percent of their earnings - 9 points higher than finance experts advise. High fees and penalties made it worse.

"We should have done more homework. We were just excited about this being our first home, and it was brand new," said Mrs. Wilson, 43.

The Wilsons experienced the world of "predatory lending," an ill-defined realm of transactions that are legal yet often prey on those with limited income and poor credit, advocates for the low-income residents say. It's a territory not generally inhabited by banks, but by mortgage companies and loan brokers eager to make a buck off the unsuspecting and inexperienced.

And it's another high cost on low-income people - just as they think they are about to break into the middle class.

For the Wilsons, the first hit came when their home builder took the unusual step of helping them get a loan - at any cost - through a local broker, a middleman who earned a high fee for arranging the loan.

Things got worse when the Wilsons got a mortgage rate higher than what most banks were offering customers.

The final blow came when the Wilsons, lacking a family attorney to look out for their interests, used a real estate lawyer referred to them by the builder and real estate agent. That lawyer did what he was legally required to do at the closing - ensure the mortgage is legal and properly filed. But he gave no advice about whether the loan rates and fees seemed reasonable.

"It was set up for us to fail from the beginning," Mrs. Wilson said. "We made a bad decision, and we should have waited."

In the end, the home builder, real estate agent, mortgage broker, lender and the attorney the builder referred them to profited.

But with none of them looking out for the Wilsons' interests, the new homeowners took on a financial burden that proved unbearable.

In December, four years after buying their dream house, they lost it. In January, they filed for bankruptcy.

"They're so excited that they're going to get a house, they don't know that they should look into things," said Michele Johnson, an East Side housing activist. "They don't get an appraisal. They don't get an inspection. They don't get anything. And in the meantime, they're screwed beyond belief. It just happens over and over."

Predatory loans

Predatory loans, on the rise in America, are devastating to low-income borrowers like the Wilsons, who lose their homes, and to low-income neighborhoods, which see more abandoned and neglected properties and a drop in housing values.

As with many struggling communities, Buffalo is particularly susceptible, experts say, because there's an unusually high level of high-cost, risky loans issued in the city by companies serving borrowers with bad credit.

Such high-rate loans aren't necessarily bad, and not every such loan is predatory. This risky lending, in fact, makes credit and homeownership accessible for many who couldn't otherwise get a loan.

But as the Wilsons found, when such loans cross the line to become unaffordable, they're considered predatory - with terms, rates and fees that are beyond the borrower's ability to repay.

While no numbers are available, Johnson suspects about half the 30 foreclosures she sees weekly in Buffalo are from predatory loans, especially on the East Side. Others agree.

"You look at some of the predatory lending schemes and insurance schemes, and it's the poor who really bear the brunt of them," said New York Banking Superintendent Diana Taylor.

The Wilsons first ventured into the world of high interest loans in 1996, paying $11,000 for a 1994 Chrysler Concorde from Master Motors, a "buy here, pay here" used-car dealer in Lancaster.

With no credit history, they paid 13 percent annual interest to a car finance company for three years. That was three points higher than the average - adding $600 to the cost.

It could have been worse. If no finance company loaned them the money, Master Motors would finance the car itself at 15.5 percent. Other lenders it uses charge 24 percent.

The state's usury cap, or interest rate limit, is 16 percent for consumer loans but 25 percent for business loans and loans under $50,000, such as car loans.

Master Motors Vice President Salvatore S. Trigilio said the rates are fair.

"They're people who have had serious credit issues in the past and they're high-risk buyers," he said.

The Wilsons couldn't keep up with their $371 monthly payment, though. The car was seized in 1999. While that harmed their credit, it didn't compare to their experience with a home.

Home buyer subsidy

After two years of housing counseling classes required to qualify for Buffalo's first-time home buyer subsidy program, the Wilsons felt prepared to buy a home. They chose their dream house on Waverly Street, on the East Side.

It would be a newly built 1,918-square-foot, two-story white home with maroon shutters, a one-car garage and a big yard. The house was almost $105,000, but with a $25,000 city subsidy for low-income first-time home buyers, they thought the $79,000 price was doable.

Given their income and poor credit, however, the Wilsons were repeatedly turned down for a traditional bank mortgage. Besides the car loan, they had credit card debt and medical bills for Wilson, who was disabled in a 1997 work accident.

So they turned to their builder, Rocco Termini of Burke Brothers Construction. He suggested National City Mortgage, a broker that finds lenders for clients.

National City, a Cleveland bank's subsidiary that had an office on Main Street in Amherst, contacted Fremont Investment & Loan of California. And Fremont, a mortgage company that lends to people with bad credit, loaned the Wilsons $78,600 in October 2001, with a $500 down payment.

The Wilsons didn't have their own attorney, so Termini and the real estate agent from Hunt/ERA recommended one they used before, Philip S. Chamot.

Chamot said his role was to review the property title and ensure the final documents matched the original agreement. He said he isn't paid to offer financial or credit advice.

"Maybe there should be some ombudsman out there," he said. "But that's not what I was hired for."

But a real estate attorney who teaches ethics for the New York Bar Association said lawyers have a responsibility to alert clients if loan terms, such as those on the Wilsons' loan, seem unusually burdensome.

"It's my business to point out things like prepayment penalties and things that are not typical in a usual residential loan," said Anne Copps, an Albany real estate lawyer who co-chairs the Bar Association's Real Property Section's Professionalism Committee. ". . . It would be something I would point out if I thought it was predatory."

Attorney Gregory J. Perla represented Fremont and National City at the closing. But while Perla said he would have explained the terms to the couple, he said it's not his responsibility to question the terms or whether the clients can afford them.

"I have no love for these secondary lenders," he said. "They prey on these people and do everything they can to protect their interests and ensure they're paid back. But I don't think these people would be able to buy a house in any other way."

The interest rate

The Wilsons received an interest rate of 10.49 percent, four points above the national average of 6.6 percent at the time. With a $38,450 income, they had a $718 monthly loan payment.

Brokers are supposed to find the best rate for their customers, but anything over 9.6 percent was excessive at the time, even with bad credit, said Legal Aid Bureau attorney Athena McCrory, who examined the loan for The Buffalo News. She labels the loan the Wilsons received as predatory.

"That's kind of high for someone who went to a broker. They were not looking out for the buyer's interest," McCrory said of National City. "The lender knew what they were doing. The buyer had no idea."

The loan agreement carried a hefty prepayment penalty, making it cost-prohibitive to refinance in the first five years, as well as a 6 percent late fee - triple what McCrory said is normal but common in abusive lending.

Closing costs were also excessive and dubious, McCrory said. They included a $489 loan origination fee to Fremont, a $2,200 broker's origination fee to National City and a $400 processing fee to Fremont. Fremont also paid a commission of $1,512 to National City - a reward for a high-cost loan.

Most other closing costs, for legal fees and recording taxes, were normal, although McCrory said a credit report costing $55 should have cost $10.

Even so, closing costs totaled more than $5,400, without insurance or property taxes. Half was for application or broker fees - higher than a standard loan for a good customer.

So why did Termini put them on this road?

Termini's defense

Termini defended his efforts, citing a push by the city and U.S. government to get more low-income people into homes. Many other families he worked with, who had good credit, obtained rates of 3.5 percent through a government program and had no problems, The News found.

"I want everyone to get a conventional mortgage. But some people can't," Termini said.

The loan should have been affordable for the Wilsons, Termini said, given that a chunk of the family's income is tax-exempt. About half the family's $38,450 income comes from Wilson's Social Security disability and workers' compensation since his 1997 work accident.

Whatever portion of a borrower's income consists of nontaxed government benefits, mortgage lenders typically "gross it up," or inflate, when determining affordability. The "gross up" formula would raise the Wilsons' $38,450 income to nearly $44,600, The Buffalo News found.

But Termini claimed the income was even higher, about $51,000, based largely on $1,560 monthly Social Security payments he claims two of the Wilsons' children received because of their father's disability. Those payments would total $18,720 annually.

But such payments would appear to violate Social Security benefit limits. And Social Security documents obtained by The News show three Wilson children received $564 each for all of 2001 - totaling $1,692 annually, not $18,720. The $1,692 is included in the Wilson' $38,450 income.

Some of Termini's other figures for the Wilsons' income also don't add up, such as Mrs. Wilson's day care earnings and Wilson's government payments, The News found.

Termini refuses to allow The News to review his documents, saying he doesn't want to be in the middle, and referred questions to the lender and broker.

Officials for Fremont did not return calls to comment. But a spokesman for National City said the company "adheres to strict fair-lending principles."

Spokesman Chris Kemper wouldn't discuss the Wilsons' loan, citing privacy. But he said a loan's pricing and features depend on a borrower's credit history, debt level and loan size relative to the home's value.

More high-risk loans

Lending to borrowers with bad credit has grown sharply in recent years as companies learned to better measure and price risk.

Today, there are more than $516 billion in these high-rate, high-risk loans, up 1,000 percent in a decade, according to the Center for Responsive Lending, a North Carolina advocacy group that fights abuses. And it's very profitable.

That has attracted top names in the banking industry, such as Citigroup, Wells Fargo & Co., and HSBC Holdings Plc, parent of HSBC Bank USA. Citigroup owns the car lender the Wilsons previously used.

But the profits also draw smaller, less reputable players. They are less concerned if a borrower can repay, and they solicit loans by phone, mail or door-to-door.

Their brokers and officers get paid for high-rate loans, creating an incentive to make a deal, critics say. Since the loans are backed by property, or insured by government agencies such as the Federal Housing Administration, lenders have little risk.

No one knows how much of the high-risk loan market is predatory, but by some estimates, abusive practices increase costs for borrowers by as much as $9.1 billion annually.

"They prey on people who have poor credit. They prey on the seniors," Johnson said. "They get paid regardless."

The Wilsons' struggle

For the Wilsons, the mortgage, taxes and insurance totaled more than $1,200 - or 37 percent of their monthly earnings. And that didn't include other debts or bills like utilities.

Industry standards say mortgage and housing costs shouldn't exceed 28 percent of income.

The Wilsons struggled to make payments. They filed for Chapter 13 bankruptcy in October 2003 and made nearly $6,000 in back payments to save the house. They tried to refinance several times but were blocked by the prepayment fee.

"They were in over their head from the beginning," said Randy Gugino, the Wilsons' current bankruptcy attorney.

In 2004, Mrs. Wilson moved her day care because of problems in the Bailey Avenue building where it was located. She also was robbed. Getting recertified by the state in a new site - her home - took more than a year, disrupting their income and causing them to miss payments.

Foreclosure started last July. Members of their church tried to help, offering to buy the house and rent it to the Wilsons, but no agreement could be reached with the lender.

By December, the family was evicted and moved into a house owned by Wilson's sister, where they now pay rent.

Their eldest daughter, Latoya, lives on her own, and their 13- and 17-year-old daughters, Briana and Brittany, share a bedroom. Their 20-year-old son, Dimitrius Jr., lives with a friend because there isn't enough space.

After years of stress and angst that strained their health, the Wilsons say they are now more relaxed. They still hope to own a home but are now smarter.

"I think the opportunity will come again, but we'll know how to do it better," Mrs. Wilson said. "Through everything we've been through, I learned a lot. You can't get me now."

e-mail: jepstein@buffnews.com