Avoiding foreclosure

Help is building to assist homeowners redo mortgages and avoid foreclosure, but questions remain about how far lenders will go as the toll of people losing homes mounts.

A far-reaching foreclosure prevention effort announced last week by federal and industry officials was the latest signal lenders need to expand outreach to borrowers shackled by rising mortgage payments and falling property values.

Borrower advocates, however, said homeowners should be prepared for a potentially frustrating experience that can take six months to a year.

"It's a real tough road," said Marty McCormick, a Santa Rosa mortgage broker. "The agony, the lack of communication, the anxiety just doesn't make any sense."

Joan and Angela Ricci, a mother and daughter who own a Sonoma home, needed 14 months before their lender agreed to lower their monthly mortgage payment.

"Everyday, I thought I was going to lose the house. I was a nervous wreck. Your life changes," said Joan Ricci. "We've been crying a lot."

The Riccis and others gaining lower mortgage payments to hold onto homes are bright spots in Sonoma County's widening mortgage crisis.

Lenders are seizing more than 70 homes a week and have repossessed 3,015 homes in the region from the beginning of 2007. Nearly a third of the foreclosures occurred in the third quarter of this year.

Foreclosure is the last step in a process that begins when homeowners start missing mortgage payments.

Most vulnerable are homeowners who purchased or refinanced homes around the peak of the housing bubble in summer 2005. Many relied on subprime, pay-option and other risky mortgages because they featured low initial monthly payments that made purchases possible as prices hit record highs.

As the subsequent housing downturn took hold, falling property values have left an increasing number of homeowners owing more than houses are worth, known as being upside down. For those who can't afford rising monthly mortgage payments, holding onto homes means reaching agreement with lenders on repayment plans, suspending payments for a period, or redoing loan terms.

Changing loan terms -- known as a modification -- is gaining increased attention as a critical means to averting foreclosure.

The aim is to lower interest rates, waive penalties, or roll past-due payments into a loan so a monthly payment can be made affordable. The industry standard for modifications is to keep payments no higher than 38 percent of monthly income.

The process typically takes up to two months, according to Hope Now, a private sector group representing most of the nation's lenders and loan servicers. Hope Now has established guidelines to streamline notifications and negotiations to help companies tackle the task, said Faith Schwartz, the group's executive director.

"The numbers are big. That's why it's important to take friction out of the system," she said.

The problems for Joan Ricci began when she refinanced her home of 43 years in January 2007. Ricci was put into a subprime loan with a high interest rate -- not the 30-year mortgage she expected -- by an out-of-town mortgage broker who solicited her by phone. Daughter Angela Ricci stepped in, but couldn't get the original lender, Argent Mortgage, to undo the loan. Citimortgage later purchased the mortgage.

They made the monthly payments, with Joan returning to work at age 70 and Angela taking on side jobs as a respiratory therapist. Family and friends also provided financial help. But by December, they could no longer afford the house payment.

"We depleted every penny we had," Angela Ricci said.

The Riccis received a default notice in January, but Citimortgage hasn't pursued foreclosure.

After working with a housing counselor for six months, they turned to McCormick in March. He is among a growing number of mortgage brokers attempting to negotiate more-affordable loans for clients.

Citimortgage turned down repeated requests to change the loan terms before agreeing to reconsider in May. But the lender didn't agree to specific terms until this month, lowering the interest rate to get the monthly payment from $4,600 down to $2,900.

"It means we get to keep our home, which is what we wanted all along. But I have the burden of working everyday of my life to make the payment," Angela Ricci said.

Sandra and Octavio Lara weren't as successful working with the lender on their Rohnert Park home. They defaulted on the loan and now their only hope to avoid foreclosure is to sell short, where a buyer pays less than what is owed on a home.

"It's really, really frustrating," Sandra Lara said.

The couple now rents a Santa Rosa home. They can't think about buying again for several years because their credit is ruined.

"There's nothing we can do at this point. It's really sad because you can basically kiss your dream of buying a home goodbye for awhile," Sandra Lara said.

The couple had an adjustable rate mortgage with Carrington Mortgage on their Rohnert Park home. They sought help before the payments started rising, but the lender wouldn't consider changing the terms until they were three months behind, Sandra Lara said.

The payments had risen from $3,000 to $5,100 when the couple stopped making the mortgage in October. The lender began talks over loan terms the end of December. Carrington Mortgage eventually agreed to lower the payment, but only by $800, leaving the family with a $4,300 monthly payment.

"We asked them to lower the loan amount, if they were willing to finance it for what it was now worth. But they basically want their money," she said. "We couldn't afford it anymore."

What the Laras sought was a reduction in their loan balance, in addition to a reduced interest rate, to further lower the mortgage payment.

Lenders, however, are reluctant to reduce loan balances, particularly in California and other states where property values are historically volatile and could eventually swing back up, according to industry officials.

But reducing loan balances to bring them closer to current home values could be an incentive for homeowners to struggle and make mortgage payments, said Kevin Stein, executive director for the California Reinvestment Coalition, a San Francisco-based low income housing advocate.

"If their debt is more in line with their home's value, it reduces the number of people supposedly walking away from their homes," Stein said.

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.

INSIDE

Facing foreclosure? Here are some steps you can take to try to stay in your home.

Federal officials announce program to help homeowners

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