‘American dream has gotten lost in shuffle’

An increasing number of Valley families face possibility of foreclosure




Four years after the housing market fell — and brought Wall Street with it, Denise O’Malley’s story has become all too familiar.

After O’Malley, a registered nurse’s assistant, and her husband, Terry, a roofer, were laid off in the early stages of the recession, the couple realized they soon would have trouble making monthly payments on their Wilson Avenue home.

The O’Malleys’ home was now worth $62,500, significantly less than the couple owes on the 30-year, $177,900 loan.

Although they were current on their payments, the O’Malleys applied to their mortgage servicer, GMAC Mortgage, for a loan modification in spring 2009.

More than a year later, fighting to save their home has become Denise O’Malley’s full-time job. She said she has filed for a loan modification at least nine times. But every modification GMAC has offered also increased their monthly payments.

“I kept thinking, ‘They’ll see what they’re doing; they’ll understand that we aren’t working,’” Denise O’Malley said. “But the American dream has gotten lost in the shuffle.”

She has talked to countless GMAC representatives about why the modification is an increase — explanations have ranged from claims of missing paperwork to an overassessment of the O’Malleys’ income because Terry can pick up some temporary work, Denise O’Malley said.

“They said there were mistakes in the paperwork. They said it’s not their problem,” she said. “They are scary; they are intimidating because this is our home.”

The O’Malleys are now five months behind on their payments. GMAC has not begun the foreclosure process, but O’Malley said she worries it could start at any time.

An increasing number of families such as the O’Malleys are suffering as foreclosures continue to rise, ravaging local homeowners and communities, said Mary Ann Beal-Villa, a foreclosure-prevention counselor for the Mahoning Valley branch of Empowering and Strengthening Ohio’s People, or ESOP, which provides free foreclosure-prevention counseling.

In May alone, Mahoning County had 301 new fore-closure filings, and Trumbull County had 247, according to foreclosure data tracker RealtyTrac. Columbiana had 86 new filings.

Unlike the risky subprime loans and predatory- lending practices that caused earlier foreclosures, the recent foreclosures have been driven by the Valley’s persistently high unemployment and decreased home values, Beal-Villa said.

Unemployment in the Mahoning Valley has not fallen below 12.5 percent since January 2009. The national unemployment rate was 9.7 percent last month.

Because of long-term unemployment, a rising number of foreclosure victims are homeowners who formerly had good credit and avoided exotic mortgages, she said.

While foreclosures on subprime loans were concentrated in urban areas, the crisis has spread to suburban and rural communities, Beal-Villa said.

“Foreclosures are starting to affect homeowners that once considered themselves middle-class,” Beal-Villa said. “It is more of a widespread problem — it’s like a tornado; it doesn’t pick, it just goes.”

The primary cause of Valley foreclosures is loss of income, Beal-Villa said. Unemployment, wage freezes and furloughs have made it more difficult for families to make ends meet, she said.

“There is hope that when the economy turns around and more jobs are created in the area, it will slow down,” Beal-Villa said. “But when the foreclosure process starts, it’s hard to stop it.”

In April 2009, the Obama administration introduced a $75 billion federal fore-closure-prevention plan, the Home Affordable Modification Program, or HAMP, which promised to reduce monthly mortgage payments for 3 million struggling homeowners.

HAMP has been plagued by problems and largely ineffective for Ohioans, said Charu Gupta, a spokeswoman from ESOP’s central office in Cleveland.

The program provides incentives to participating mortgage lenders to reduce eligible homeowners’ payments to 31 percent of their monthly income. Lenders also must pledge to expand their staff and services to deal with a growing foreclosure backlog.

HAMP has encountered problems because no one has any authority to ensure the lenders are following program mandates, Gupta said.

“It has good intentions. But somewhere along the line, something has gone horribly wrong with the incentive structure,” she said. “If the proof is in the pudding, there is no pudding.”

But the service issues mask a more significant problem: HAMP was not designed to account for families such as the O’Malleys, who face long-term unemployment.

The original program would not consider unemployment benefits as a source of income, so those who were unemployed were not eligible for a HAMP modification. That rule was altered last week, but homeowners must prove they will get unemployment benefits for at least nine months. Ohio guarantees those benefits for only up to 26 weeks.

As a result, few Ohio homeowners have benefited from the program — only 8 percent of Ohio homeowners have received a permanent HAMP modification. The state ranks 48th in the number of homeowners who have gotten a loan modification through the program.

To try to stem the problem, the federal government has granted the Ohio Housing Finance Agency with $170 million in Hardest Hit Funds, part of a $2.1 billion in Troubled Asset Relief Program, or TARP. The funds will go to 10 states that have suffered severe home-price declines and high unemployment.

In a proposal submitted to the Treasury Department last week, the OHFA said it will target the funds for unemployed and underemployed homeowners in counties with “a high share of foreclosure, high unemployment rates, or large declines in home sales.” It also would provide financial incentives to mortgage servicers to either modify the loan or help the homeowner get out of the loan without going through the foreclosure process.

The funds will be administered by organizations such as ESOP that have been certified by the U.S. Department of Housing and Urban Development to provide free foreclosure-prevention counseling. ESOP and similar organizations work directly with lenders on behalf of homeowners to negotiate loan modifications.

On Wednesday, Denise O’Malley met with the Mahoning Valley branch of ESOP with the hope that the organization will be able to help her get a modification her family can afford.

Denise O’Malley hopes that ESOP will help reduce her monthly payment from $713 to around $600, with the outstanding payments wrapped at the end of the loan.

“I know I can make $600, so I’m hoping they might be willing to negotiate,” she said.

She says she is not going to give up on saving their house.

“Failure is not an option,” she said. “I am going to save my home, one paper at a time.”

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