Ronald Danis, in his Coventry house, is among a growing number of Rhode Islanders who have had problems meeting their mortgage payments. Danis has filed for bankruptcy protection.

THE PROVIDENCE JOURNAL / BOB BREIDENBACH

Ronald Danis thought he got a good deal when he bought a $252,000 house with no down payment.

Danis, a 35-year-old truck mechanic who collects model race cars, was living with his family of three in a two-bedroom apartment in West Warwick. The rent was $800 a month. So, when his wife became pregnant again, they began looking at houses. “We felt, why waste the money on rent?” Danis recalled.

He bought a three-bedroom ranch in a cul-de-sac in a blue-collar neighborhood in Coventry in April 2004. The price was $252,000.

The mortgage lender financed 100 percent of the price, plus fees and closing costs. Danis even got back his $2,000 deposit at the closing.

“They told me this was the best mortgage for [me],” he recalled. “I took their word for it.”

But a year later, Danis decided it was not such a great deal. He ran into trouble paying his $2,000-a-month mortgage and eventually the lender threatened to foreclose.

After years of rising home prices, Rhode Island is now experiencing a run-up in home-loan delinquencies. More than 5,600 home loans made in Rhode Island were delinquent during the third quarter of last year, an increase of 46 percent from the same period in 2005, according to the latest survey by the Mortgage Bankers Association.

A mortgage is considered “delinquent” if the monthly payment is 30 days or more late. If a homeowner is 90 days or more late on the payments, the mortgage is considered at high risk that the lender will take ownership of the property through foreclosure.

Rhode Island is one of three states — the others being Michigan and Ohio — with the largest increase in its delinquency rate during the past year, the survey shows.

Nationally, the spike in delinquencies and foreclosures, experts say, is fallout from the downturn in the real estate market. For years, rising house prices have far outpaced income growth — making owning a home ever more unaffordable.

“New England looks like the roughest area of the country after the Midwest,” said Karl E. “Chip” Case, a housing economist at Wellesley College. “It’s expensive up here, [home] prices are high, there are a lot of exotic mortgages and people are stretching themselves.”

The shift has been particularly dramatic in Rhode Island, which in 2004 ranked first in the nation for house-price appreciation.

The median price of a single-family house in Rhode Island in November was $266,000. At that price, in order to buy a house with a conventional mortgage — and avoid paying mortgage insurance — a buyer had to put down a 20-percent deposit, or $53,200.

Rhode Island’s median household income in 2004-2005 was just under $50,000, according to the latest available data from the U.S. Census.

As prices climbed out of reach, prospective buyers stretched their household budgets and lenders offered new, riskier mortgages to allow borrowers to buy houses that they otherwise could not afford. “Lenders turned more aggressive,” said Mark Zandi, chief economist at Moody’s Economy.com, “because borrowers wouldn’t have qualified for loans otherwise.”

Ron Danis knew he was not a perfect candidate for a home mortgage. His credit score was low because he’d gotten into trouble with credit cards in his 20s. But for the last 10 years, he’d had a steady job as a truck mechanic; his wife worked at a daycare center. Together, their household income in 2004 was just under $63,000.

He said a friend who was a real estate agent recommended a mortgage broker who suggested an 80-20, or “piggyback” loan, which would allow Danis to borrow more money by splitting the mortgage into two: 80 percent based upon the prime lending rate and a second, 20-percent loan at a higher, “subprime” rate.

The broker arranged for the loans with Option One Mortgage, the dominant subprime home mortgage lender in Rhode Island. The Jacksonville, Fla.-based lender originated 3,239 loans for single-family houses in Rhode Island in 2005, according to data from the Mortgage Bankers Association.

Danis and his wife, Mary, bought the house in April 2004.

He financed the house 100 percent with a 30-year “piggyback” mortgage with Option One.

The interest rate on Danis’ first mortgage was 8.44 percent. The rate on the second mortgage was 11.25 percent. Together, the payments on the two mortgages came to $2,000 per month.

The bigger of the two mortgages allowed Danis to pay “interest only” for the first two years of the loan.

“We didn’t know any better,” said Mary Danis. “Now, we’re just kicking ourselves.”

Shortly after he bought the house, Mary Danis, who was having a difficult pregnancy, stopped working and their income dipped. But their expenses didn’t. He had car payments on his 2004 Pontiac Vibe, car insurance, health insurance, cell phones, Internet service, daycare, diapers and more.

He fell behind on his mortgage payments. He tried to catch up. He borrowed $1,000 against his 401(k) plan. He got a second job selling auto parts in Warwick. He worked seven days a week. He didn’t get enough sleep and grew irritable. His wife, Mary, worried about his health.

“We were falling behind, playing catch-up, and falling behind,” recalled Danis. “This time, we just couldn’t catch up.”

He didn’t want to sell the house, but even if he did, it wouldn’t have gotten him out of the hole. In 2005, his house was appraised at $225,000 — almost $27,000 less than his mortgage.

For years, Rhode Island’s rising home values, coupled with falling interest rates, meant that buyers who had trouble paying their mortgage had options: they could sell their houses and pay off the mortgages, or refinance at a lower interest rate — even taking cash out so they could pay off car loans or other debts.

But as interest rates have risen and home prices across the nation have leveled off and, in some states, declined, strapped owners could no longer refinance at a lower rate — and some couldn’t sell their house for enough to repay their loans.

Rhode Island is one of five states in the country — the others being New York, Michigan, New Hampshire and Massachusetts — that recorded a decline in house prices from the second to third quarters of last year, according to the Office of Federal Housing Enterprise Oversight.

A national index of “housing affordability” shows that since 2000, Rhode Island’s affordability has declined at more than three times the rate in Massachusetts, and more than double the national average, according to data from the Bureau of Economic Analysis and Moody’s Economy.com.

(The index is based on what a household at the state median income can afford to pay for a median-priced house.)

Rhode Island’s housing affordability index now stands at “97,” which means a household earning the state’s median income can only afford to pay 97 percent of a median-priced home. Just five years ago, the affordability index was 141, according to the data.

To bridge the affordability gap, lenders offered “zero down,” “piggyback” and other risky loans to enable borrowers with little cash to qualify for mortgages.

Nationwide, more than a third of loans made to borrowers during the first nine months of 2006 were “nontraditional,” compared with 2 percent in 2000, according to First American LoanPerformance, a California-based real estate information firm.

In Rhode Island, nearly 16 percent of all house-purchase loans in 2006 were “interest only,” according to LoanPerformance. An interest-only loan allows the borrower to pay only interest, or a share of it, each month, for years, without paying down the principle.

But people who thought they were lucky to get 100-percent financing on their houses are winding up with “negative equity,” meaning that they owe more than the value of their property, said Peter G. Berman, a bankruptcy lawyer at Berman & Raskin on Providence’s East Side.

“Now, they can’t borrow their way out of the problem,” he said.

On Nov. 6, 2006, a legal notice ran in The Providence Journal stating that the Danis family’s house “will be sold at public auction on November 20, 2006 at 4:00 PM.”

It was among dozens of foreclosure notices that filled the newspaper’s classified ads almost daily. During the third quarter of last year, more than 600 mortgages fell into foreclosure in Rhode Island, up 41 percent from the same period in 2005, according to the Mortgage Bankers Association.

The lion’s share of the foreclosures appear to be in Providence, where the mandatory legal notices that ran in The Journal last year jumped nearly 300 percent, according to a Journal analysis. Providence had one foreclosure listing for every 111 households, compared with one in 194 in Coventry.

Danis and his wife both grew up in Coventry. They knew their neighbors. One drove a bus; the other was a prison guard. Their children played in each others’ yards. They didn’t want to lose their house.

Shortly after his house was advertised for foreclosure sale, a letter arrived in Danis’ mailbox. Christopher M. Lefebvre, a bankruptcy lawyer in Pawtucket, had seen the Danis name in the newspaper foreclosure listings.

“I see 25 families a week, easily, and sit down with and listen to their finances,” Lefebvre said. “To be a homeowner today — to be able to afford that privilege — is a very costly thing. The fact of the matter is, the average family of four, even those making $75,000 or $80,000 a year … can’t afford the homes they want to buy.”

While changes in the federal bankruptcy laws have helped drive down bankruptcies nationally, local bankruptcy lawyers report a rise in foreclosure-related bankruptcy cases.

“Before it was that people had overwhelming credit card debt,” Lefebvre said. “Now, we’re seeing foreclosures.”

Under Chapter 13 of the federal bankruptcy law, debtors who qualify can agree to a plan whereby they promise to repay their mortgage debts and other secured debts — and keep their houses.

But nationwide, the success rate for people saving their houses through Chapter 13 is “very poor,” Lefebvre said, and “too often Chapter 13 simply delays the inevitable and people loose their homes anyway.”

But Danis had a steady job and his wife was returning to work. So, on Dec. 4, Lefebvre filed a Chapter 13 bankruptcy petition for Danis. At the time he filed, the balance on Danis’ two mortgages had climbed to $260,678, according to court documents.

Everything that Danis owned — right down to the family dog, “Margarita,” a miniature Doberman he bought from a breeder for $300 — was itemized.

Under the Chapter 13 bankruptcy plan, Danis agreed to pay, over time, the arrearages on his mortgage and all of his other debts, which included about $3,000 in credit cards and $2,000 in gas and utility bills and $1,774 in bills from his lawyer. The cost of the plan was estimated at $17,092.

To repay his creditors, Danis would send $200 per month to a court-appointed trustee, as well as sign over his estimated $5,000-a-year federal income tax refund to his lender.

If he sticks to the plan, Lefebvre said, Danis will be able to get out of Chapter 13 in just under three years.

“As long as I make my mortgage payments,” Danis said, “the house is still mine.”

For information about Rhode Island Housing’s free homebuyer education classes go to: www.rihousing.com.

tbarmann@projo.com