Harried homeowners seek out help

Though foreclosure filings in the Philadelphia region are down so far this year, the faltering economy is pushing many homeowners right to the brink.

"At first, we were seeing mostly subprime borrowers, but with higher food and gas prices and increasing layoffs, we are handling families from across the board," says Donna Turner, director of AHOME, a counseling agency in Millville, N.J., that helps people avert foreclosure.

In 2007, Turner says, her office - which typically sees clients from Gloucester, Salem and Cumberland Counties - handled 114 cases. "Now, we receive four or five phone calls a week - some from 75 miles away.

The same scenario is playing out across the region, mortgage counselors say, as families try to navigate a slippery financial slope.

"The reduction in foreclosure filings as compared to last year is a mystery to me," says Farah Jiminez, executive director of the nonprofit Mount Airy USA, a Philadelphia counseling agency. "On the ground, we are still getting lots of calls.. . ."

Statistical ups and downs mean little to people finding it increasingly hard to make their mortgage payments. The squeeze is affecting every economic group, Jiminez and Turner say.

And younger, middle-class borrowers who used exotic or subprime loans to buy more house than they could afford are asking for help in growing numbers.

"In the places where I've seen individualized data recently, Baltimore, Philadelphia and Newark . . . the phenomenon is heavily impacting the lower- but not the lowest-priced homes," says Ira Goldstein of the Reinvestment Fund, which finances neighborhood revitalization nationally.

"People were sucked into the American dream and the fact that if they did not jump on the bandwagon, they would lose out on making money," says Fred Glick, a Philadelphia mortgage broker and Realtor. Many bought into a "let's worry about that later" attitude, he adds, especially if they were told they'd be able to refinance in two years and cut their payments.

Rather than slip into foreclosure, Danielle Conroy has been trying hard to address the subprime mortgage eating away at her assets.

In 2006, Conroy bought a $300,000 house in Southampton, Bucks County, with a $280,000 adjustable-rate mortgage (ARM) that was supposed to have an interest-rate cap of 9.5 percent and no prepayment penalty.

The cap was true - her interest rate has dropped to 8.75 percent. But the prepayment penalty turned out to be 20 percent if she tried to refinance in the first three years.

"I'd never bought a home before, so I didn't know," says Conroy, a hospital employee whose husband, Christian, is self-employed.

Their monthly mortgage payment has risen from $1,700 to $2,500. And because their lender didn't pay property taxes from money escrowed, there's a tax lien against the house, she says.

With so much cash going toward the mortgage, the Conroys are giving their credit cards a workout. "If I have to put groceries on a credit card, I'll do it," Danielle says.

She contacted Hope Now, a national alliance of major lenders designed to reduce mortgage delinquencies by helping borrowers renegotiate their loans.

"They told me that since I'd been paying my mortgage on time and wasn't in foreclosure, they couldn't help me," Conroy says. "They told me to talk with my lender, who said I could refinance, but only if I gave them $20,000."

Refinancing landed John and Lisa Duckett of Lansdowne into a mess in 2005, when they tapped the equity in the house they paid $88,500 for in 1997.

They figured they could easily handle a $168,000 adjustable-rate loan at 9.85 percent, with payments of $1,400 a month. But "last July, the interest rates went up to 12.85 percent, and our payments to $2,800 a month," Lisa says.

"We handled the increased payments by not keeping up to date with our bills," she says. "It was a snowball effect - our credit was shot."

In April, Hope Now lenders were at the University of Pennsylvania. The Ducketts met with their lender, Option One, and got an 8 percent fixed-rate loan with monthly payments back at $1,400.

"It was like Christmas," Lisa says.

Troubled borrowers must act swiftly to turn things around, counselors say.

"You can't just collect letters from the lender and not open them," Turner says. "We can't do anything to help you if you don't do something to help yourself."

In 2003, Philadelphia Sheriff John Green began using education to reduce foreclosure sales, urging borrowers to act when the first letter from the bank arrived.

Green's efforts have borne fruit, and he is "cautiously optimistic" about the future. In April, under City Council pressure, he suspended foreclosure sales. But a court test was feared, so a plan was devised to get homeowners free legal advice and counseling.

Lenders involved in public/private ventures such as Hope Now say they're trying to stem the foreclosure tide. But not every borrower-lender encounter is a good one.

Patricia and Benjamin Alber bought a Bensalem house in 2001 with an 8 percent subprime ARM. A now-defunct mortgage broker promised a lower rate because of the Albers' payment history.

But "when we showed up," Patricia Alber says, "the rate was 10.5 percent, and our monthly payment zoomed to $2,700. Just to make payments, we had to borrow."

Peter Buchsbaum of Arlington Capital Mortgage in Jenkintown got the Albers approved for a lower-rate FHA loan to save their home from foreclosure. Then he fought for months to get their Texas-based lender to cancel an $11,000 prepayment penalty.

"The process was exasperating," Buchsbaum says.

A check of properties listed for March sheriffs' sales in the region found few outside the $75,000-to-$350,000 range, middle-class territory. To try to cap foreclosure rates, the states have set up homeowner-rescue programs.

The Pennsylvania Housing Finance Agency's REfinance to an Affordable Loan (REAL) program refinances troubled loans with 100 percent fixed-rate mortgages for qualified borrowers. Its Homeowners' Equity Recovery Opportunity (HERO) Loan lets the agency buy a troubled mortgage from the lender and sets up a repayment plan.

So far, 40 applicants have been approved for REAL, 41 for HERO, says agency executive director Brian Hudson.

In addition, the state's 25-year-old Homeowners' Emergency Mortgage Assistance Program lends money to help bring delinquent payments current, using the mortgage itself as security. In 2007, 10,592 applied for these loans and 2,764 were approved, Hudson says, up from 2006, when 9,950 loans were sought and 2,678 approved.

New Jersey's $30 million Homeownership Preservation Refinance Program is a pilot plan offering 30- or 40-year loans fixed at a low interest rate for the term.

The state's Foreclosure Prevention and Asset Preservation Program offers in-depth counseling to households that do not qualify under other refinancing options, spokesman Chris Donnelly says. And this month, he adds, a mortgage assistance program will debut for homeowners who work with the state-trained counselors and need "catch-up" funding.

At the close of 2007, subprime mortgages accounted for 137,337 of New Jersey's 1.29 million loans and 205,662 of Pennsylvania's almost 1.56 million loans, Hope Now data show. One-third of Pennsylvania's subprime loans and about half of New Jersey's have adjustable rates.

What troubles the Reinvestment Fund's Goldstein is that 22.2 percent of the subprime ARMs originating last year in the city were delinquent by year's end. There are "extraordinary levels of delinquency" for such loans in some neighborhoods that typically have higher foreclosure rates, he says.

Goldstein and others believe the subprime loans may boost foreclosure filings, though not to the level seen elsewhere in the country.

The term subprime crisis "is accurate if someone bought in California or Nevada," Jiminez says. "In the Philadelphia market, it might be more accurate to say we should be concerned and watchful."