Image: Renegotiating mortgage
Ed Reinke  /  AP
Peter and Gina Fochtman, left, and Legal Aid attorney Soha Saiyed, right, listen to bank attorney Jeremy Rettig on July 23 as they discuss renegotiating the terms of the Fochtmans’ mortgage in Louisville, Ky.
updated 8/21/2009 3:29:47 PM ET 2009-08-21T19:29:47

Peter and Gina Fochtman sat stone-faced at the courtroom table. Across from them was the man who could determine their family's future: an attorney for the bank trying to foreclose on their home.

Since they fell behind on payments several months ago, the couple had made dozens of fruitless phone calls and confronted seemingly endless paperwork problems.

Then, just as they were about to lose their house, the Fochtmans got assistance from a city program that required the lender to meet with them as a last step to avoid foreclosure.

"It's just been a nightmare all the way through," said Peter Fochtman, a produce salesman who blames most of his financial troubles on surging health care expenses and the cost of treating one child's heart condition. His wife works part time as a clerk at a school uniform store.

Louisville's requirement has helped thousands of families stay in their homes, and similar measures are popping up in other cities and states such as Connecticut, Nevada and Philadelphia.

In an effort to ease the foreclosure crisis, the programs give struggling homeowners a final chance to talk with lenders and put borrowers in touch with attorneys and housing counselors.

More than 1.5 million American households were at risk of losing their homes in the first six months of the year, according to foreclosure listing service RealtyTrac Inc.

Since the beginning of 2007, more than 1.6 million homeowners have had their homes repossessed. Today, a record 12 percent of American homeowners with a mortgage are either behind on their payments or facing foreclosure. And that number is expected to climb for another year, depending on how many people lose their jobs in the recession.

A lifeline for homeowners
In places that have such programs, lenders or their attorneys are generally expected to attend negotiating sessions if homeowners ask. But banks are under no obligation to modify loan terms.

For the Fochtmans, the program offered a lifeline. Their anxiety was growing as their four children — ages 8 to 20 — kept asking how much longer they would be able to stay in their home.

Adam Hall of the Mortgage Bankers Association of Kentucky said lenders welcome the process as an option to avoid foreclosures, which he called "the worst case scenario" for banks.

"We just want to make sure that we don't overset expectations," he said. "It is not going to solve every single person's problem. ... But hopefully it will help a number of people to avoid foreclosure."

In Louisville, foreclosure complaints sent to homeowners now include information about the conciliation program. Community activists and volunteers visit each home to encourage participation.

The program has been fully operational since July 1 after a phase-in starting in early spring. At least 30 homeowners have had conciliation conferences so far, but the number will rise substantially by September.

The foreclosure process can continue while a homeowner goes through mediation, but local judges have agreed to hold off on ordering home sales until owners and lenders can meet to negotiate. That could also help the court system, which is being clogged by foreclosure cases.

Most come to an agreement
In Connecticut, nearly 3,000 homeowners went through a statewide foreclosure-mediation program from July 2008 through May of this year. So far, about 60 percent have worked out agreements that have kept them in their homes. Another 14 percent were able to negotiate "graceful exits" that allow them to voluntarily leave their homes without facing huge debt burdens.

When the program was first proposed, lenders worried it would create "more negatives than positives," said Tom Mongellow, vice president and treasurer of the Connecticut Bankers Association. Now, he said, it's a success story, keeping borrowers in their homes and preventing banks from being flooded with additional property to maintain and sell.

Mediation comes with some costs for lenders, including attorney fees and the time employees devote to it. But "we recognize that sometimes a little bit of cost is worthwhile if the end result is beneficial for both the bank and the borrower," Mongellow said.

In Nevada, a new law will allow homeowners served foreclosure notices to request meetings with their lenders and trained mediators.

So far, more than 400 attorneys and mediators have volunteered, and about 100 have completed training, with more slated for fall. Since July 1, the program has received more than 450 requests for mediation from homeowners.

And in Philadelphia, a foreclosure-prevention program started in April 2008 has allowed about 1,400 people — out of 5,200 cases — to stay in their homes. The program postpones sheriff's sales until homeowners can try to rework terms of their loans in court-sponsored conciliation sessions.

"It's a finger in the dike," said Terry Gillen, a senior adviser to Mayor Michael Nutter. "But during these times, where you have people losing houses like crazy, a program that provides relief for 1,400 homeowners is a big success."

Opportunity to save home
Pamela Kennebrew, a housing counselor with the Philadelphia Unemployment Project, has decorated her office with thank-you cards from clients who successfully made it through the program.

"It gives everyone the opportunity to at least try to save their home," Kennebrew said.

For the Fochtmans in Louisville, everything changed once they entered the conciliation program. Legal Aid Society attorneys were at their side to give free assistance in their negotiations with Regions Bank.

Gina Fochtman noticed the difference, saying the lender "has started to really take us seriously."

Afterward, attorney Jeremy M. Rettig said the bank "certainly wants to work with them and do what they can to keep them in their home," though he could not disclose additional details.

Rettig told the Fochtmans that Regions Bank should be able to offer a loan modification and details of the new terms would be provided soon.

Still, no one is under any illusions the programs will help everyone.

Ben Carter, a Legal Aid Society attorney in Louisville, said some negotiations will be more difficult than the Fochtmans' case.

"Everybody was getting something worked out today," Carter said. "We'll see what happens when we feel like we should get a loan modification ... and the bank says 'We don't think you should.' That day is coming."

The Fochtmans showed little emotion during the half-hour session, but afterward, the stress accumulated during months of uncertainty seemed to melt away. There were no smiles, but at least there was hope.

"I think it's going to work out," Peter Fochtman said quietly.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 3.79%
$30K home equity loan FICO 4.99%
$75K home equity loan FICO 4.69%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.83%
13.79%
Cash Back Cards 17.80%
17.78%
Rewards Cards 17.18%
17.17%
Source: Bankrate.com