Alarms Sound on Dangerous Loans

Add to that the costs to homeowners and local communities, and the cost of each home foreclosure climbs to $78,000 on average, according to a report by Congress's Joint Economic Committee.

The effects are compounded as foreclosures multiply in some neighborhoods, dragging down property values and slashing local government revenue as property taxes, utility bills and fees go unpaid, that report said.

That helps explain why two state regulatory groups issued a consumer alert this week, urging homeowners with adjustable-rate mortgages to plan now for upcoming increases in their monthly payments. These mortgages typically start with low introductory rates that later spike.

The groups, the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, also issued a letter urging companies that manage mortgages to contact borrowers whose loans will reset this year.

"Servicers should provide information on when the [reset] will occur and how much the monthly payment will adjust," Michael Stevens, a senior vice president at the bank supervisors group, said in a statement.

While some nonprofit groups work to educate consumers, others are working to inform policymakers.

This week, the Pew Charitable Trusts announced that it would grant $1 million to the nonprofit Center for Responsible Lending. The center plans to use the money to promote policies that curb abusive lending practices in the subprime market, which caters to borrowers with blemished credit or other factors that make them a risk to lenders.

Specifically, the two groups want to strengthen underwriting standards so that lenders must verify a borrower's income and make sure the borrower is capable of repaying the mortgage after scheduled increases, said Tobi Walker, an officer in Pew's health and human services program.

Staff writer Nancy Trejos contributed to this report.