Image: Denise Bold and her son Jordan
James Cheng  /  James Cheng
Denise Bolds and her son Jordan are seen in their home in Poughkeepsie, N.Y., earlier this month. To avoid foreclosure, Bolds was forced to sell the house.
By John W. Schoen Senior producer
updated 6/26/2008 7:32:00 AM ET 2008-06-26T11:32:00

In 2005, when Denise Bolds was looking to refinance her four-bedroom Victorian home in the Hudson Valley town of Poughkeepsie, she was intrigued by a mailing that said she'd been "pre-selected" for a loan program that could lower her monthly payments.

A single mom, Bolds lives with her 66-year-old mother and 17-year-old son, a high school senior who is headed for college. The program supposedly offered a "fixed-rate" loan with attractive terms, she said, which would help make ends meet on her salary as a social worker.

But when she got to the closing, she said, the terms had changed. The “fixed” rate of 5-3/8 percent only lasted two years, after which it could jump to nearly 12 percent, sending her monthly payments from $1,437 to more than $2,000. When she protested, she said, she was told she’d lose money she’d already put down in the application process.

After signing for the loan, she took the matter to the state banking department, which dismissed her complaint, based on the mortgage broker’s explanation that "all information was disclosed fairly and completely to the homeowner," she said.

By last summer, with college tuition bills looming and health complications that required surgery, the jump in monthly payments just wasn’t sustainable. She contacted her lender, she said, but was unable to work out more affordable terms. To avoid foreclosure, Bolds made the difficult decision to sell the house. That got her out from under the mortgage but wiped out her home equity.

“I had to make a decision: It was either (my son’s) education or the house,” she said. “I had almost seven years of equity (in my house), but I have 17 years of equity with my son. So my choice was no choice really.”

More and more homeowners face the same painful decision as the fallout from the housing and lending bust shows no signs of slowing. Foreclosures hit a record high in the first quarter, as did mortgage delinquencies, a sign that more foreclosures are coming.

Poughkeepsie is the county seat for Dutchess County, where one in every 442 households was at some point in the foreclosure process in April, according to, which maintains a national a data base of foreclosure filings. That was the highest foreclosure rate in the state.

Congress continues to debate measures to help slow the pace of foreclosures, including extending hundreds of billions in refinancing from government-sponsored mortgage agencies to homeowners at risk of foreclosure as their loan payments jump to unsustainable levels. Meanwhile, state and local governments in places like Poughkeepsie are doing what they can to find solutions — like offering small loans to help tide homeowners over and offering counseling to mortgage borrowers in a financal bind. But their options are limited.

So far, Poughkeepsie’s economy has held up relatively well in the current economic slowdown. But unemployment began rising last year and has continued rising this year.

For some, it’s a sobering reminder of the devastating job losses in the early 1990s after IBM, the region’s dominant employer, slashed thousands of positions and left the region’s economy reeling.

Since then, as the county has worked to rebuild its economic base, Poughkeepsie has been rebuilding neighborhoods that were hit hard by the last housing recession.

“We have a beautiful Queen Annes' row right around the corner from us here in City Hall on Garden Street, which they completely revitalized,” said Poughkeepsie Mayor John Tyziak. “We have a lot of first-time home buyers who now live there and have strengthened that neighborhood.”

Now, with foreclosures rising, the momentum behind that revitalization effort is in jeopardy. Because Dutchess County didn’t experience the rapid housing development of high-growth areas like Florida and California, the downturn here hasn't been as swift or severe. But as the rising foreclosure rate has spread beyond the hardest-hit areas, communities like Poughkeepsie are beginning to feel the impact.

Homeowners facing foreclosure have several options. Much of the federal government’s response to date has been to encourage homeowners to contact their lender to try to work out more affordable terms. In Poughkeepsie, Hudson River Housing runs a homeownership program to help people facing default or foreclosure restructure their finances and try to work out a solution with their lender. Most people who contact the agency are first-time homeowners, according to executive director Gail Webster.

“They know they got somewhat extended, and they’re hoping to be able to fix it,” she said. “But if they can’t, they came from a rental unit, [so] they're going to go back to a rental unit."

In other cases, Webster said, “they do have the money, but they’re having trouble putting it all together. So you can help them by putting them in touch with a bank that can help them — instead of some kind of mortgage company that got them into trouble in the first place.”

Those who try to work directly with their lenders are finding the process slow going — partly because the rise in foreclosure filings is happening as the lending industry copes with job cutbacks that followed the housing bust.

“(Lenders) are still overwhelmed,” said Mel Spivak, a Poughkeepsie bankruptcy attorney who works with homeowners trying to head off foreclosure. “You don’t know who to deal with. Occasionally you get lucky, but there is really no contact person. There’s really no go-to person. Often when you call these lenders, it’s just a maze of voicemail.”

Some homeowners trying to stop the foreclosure process turn to the federal bankruptcy court here on Main Street, where few lenders even show up — preferring to turn cases over to local lawyers who run through stacks of filings as each case comes before the court. By that point, lenders are usually in no mood to work out a deal, according to Kathleen Silverii, who runs Legal Services of Hudson Valley, a Poughkeepsie agency that helps homeowners who can’t afford an attorney.

“Once (lenders) file the complaint, they don’t want to talk about how to work it out,” she said. “The machinery goes into motion, and it’s about litigating it. It’s no longer about ‘Let's see if you can catch up with your payments.'”

As house prices here continue to fall, some Poughkeepsie homeowners are finding they owe more than their home is worth. For some, the solution is a “short sale” — in which the lender agrees to accept less than the full value of the loan and not foreclose.

Norm MacKay, a local real estate agent for the past two decades, says short sales are making up a bigger part of his business. But while the process helps homeowners avoid the burden of damaged credit brought by a foreclosure, it doesn’t take the sting out of losing their home.

“A lot of them are having a very hard time emotionally,” MacKay said. “Some just cry and say. ‘I just can’t do it today. I’m going to lose it anyway so I will get back to you.’ But there’s terrible despair.”

Poughkeepsie is home to several dozen community groups and social service organizations that serve the mid-Hudson Valley, a region roughly midway between Albany and New York City. Here, as elsewhere in the country, the decline in homeownership has strained agencies that help the homeless, according to Silverii.

“Once people lose their homes, then (the state Department of Social Services) has to put them up and there’s a financial drain on the community just to support them,” she said. “Not to mention the loss of jobs and dislocation from children's schools and all of things that go along with it. It affects the whole community when people are losing their homes.”

Though some lenders are working out more affordable loans with homeowners at risk of default or foreclosure, progress is painfully slow. At Hudson River Housing’s NeighborWorks HomeOwnership Center, director Mary Linge says she’s working with a number of clients whose lenders are in the process of negotiating new terms — but none have have yet finalized more manageable payments.

Using funds provided by the county government and a local non-profit community group, the center recently hired another counselor to help with the increase in traffic from homeowners facing default or foreclosure. Dutchess County Executive William Steinhaus says local governments should be working on solutions that don’t rely entirely on tax dollars.

“I see us in a partnership role where there’s a shared responsibility and a shared effort to help those that maybe reasonably need some kind of assistance,” he said. “These require community solutions — not just county government solutions.”

A few state and local governments have begun to offer direct assistance to homeowners to keep up with their mortgages. For most part, these efforts have been limited to loans of $5,000 or so to make up missed payments.

Attention also has turned to trying to prevent future foreclosures. Community groups like Hudson River Housing are offering classes and providing counseling to help first-time home buyers avoid the traps that have tripped up many of those who are now losing their homes.

“It’s been shown that that people who are counseled, across all income levels — upper, middle, all the way down — become better homeowners and have a much, much lower rate of delinquencies and foreclosures,” said Albert Desalvo, community reinvestment officer at M&T Bank, a community bank with three offices in the city. “And one reason is because they don’t get snookered into these bad loans.”

New York is one of a handful of states that are tightening regulations on the mortgage industry to try to prevent lenders and brokers from selling more ruinous mortgages. Beginning this year, all mortgage brokers have to be licensed, submit to criminal background checks and take 18 hours of training, including an ethics class.

In November, New York Sen. Charles Schumer’s office estimated 50,000 borrowers in the Hudson Valley region had subprime loans totally nearly $15 billion. Roughly 30 percent of those borrowers qualified for cheaper, safer prime loans, according to that report.

Schumer is among those who have called for federal licensing and regulation of brokers. But it’s not clear whether those measures will be included in the final version of a housing bill that has been working its way through Congress for the past year.

Community reinvestment specialists like DeSalvo also say that without tough regulations, the lending abuses that contributed to the rise in foreclosures won’t go away.

“We’ve seen this coming for five or six years now,” he said. “When you get mortgage brokers doing these mortgages and tying in with appraisers and title companies and then selling the whole package directly to investors that are not regulated — that’s really where the focus needs to be. You’ve got to regulate how all this money churning is going on, and you’ve got to regulate mortgage brokers.”

And while lending standards have tightened, the mortgage marketing machine is still in full swing.

Last month, after spending over a year trying to get out from under her mortgage and losing her home to a short sale, Bolds got an e-mail pitch from a lender asking her if “paying less interest each month (would) make life just a little bit easier this spring.”

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