Image: Esperanza Casco
Mark Ralston  /  AFP - Getty Images
Esperanza Casco who's home in Long Beach was recently foreclosed, speaks at a "Faces of LA's Foreclosure Crisis'' rally in Los Angeles in late October.
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updated 11/8/2010 2:15:06 PM ET 2010-11-08T19:15:06

Grocery store owners William and Esperanza Casco were making enough money to stay current on their mortgage, but when JPMorgan Chase & Co. offered a plan that reduced their payments, they figured they could use the extra cash and signed up.

The Cascos say they never missed a subsequent payment, so they were horrified when the bank decided the smaller payments weren't enough and foreclosed on their modest Long Beach home.

Their story is echoed across the country by people who claim — some in lawsuits — that banks didn't live up to their end of the deal when they agreed to trial mortgage modifications.

The suits add to a feeling among many struggling homeowners that they're getting little help from the part of the government's $700 billion Wall Street rescue that aimed to help them directly.

Indeed, Treasury statistics show that only about one-third of the nearly 1.4 million homeowners accepted into the government's payment reduction program over the past year have had their reductions made permanent.

"It is extremely unfair that someone like me and my wife who have owned our home for 17 years and never missed a payment could end up in foreclosure," Casco, 47, said in Spanish through an interpreter.

Chase spokesman Gary Kishner was unable to comment on whether Cascos had been current on their payments but insisted the bank had treated the couple fairly.

"We worked with the borrower to give him as many opportunities as possible to qualify for a modification," he said. "However, they were not able to do so and therefore we were forced to foreclose on the property."

Several federal lawsuits filed in Boston accuse major lenders of breach of contract under the government's Home Affordable Modification Program, in which banks agreed to participate as part of the bank bailout.

The lawsuits say the banks agreed under HAMP to grant permanent mortgage modifications to borrowers who make all payments during trial modifications.

Attorney Shennan Alexandra Kavanagh said several of the plaintiffs lost their homes after their payments reverted to their original sums that they were unable to pay. She said she believes tens of thousands of borrowers in Massachusetts alone could be covered by the suits if they get class-action status.

One of the lawsuits, against Bank of America Corp., was consolidated earlier this month with similar complaints in five other states, Kavanagh said.

Bank of America spokeswoman Shirley Norton said in an e-mail that the lender will continue aggressively defending itself against the cases.

More lawsuits have been filed against other lenders elsewhere.

In San Francisco, the Housing and Economic Rights Advocates legal services group sued Chase, accusing the New York bank of profiting from collecting payments during long trial modifications that ultimately end in foreclosure.

"They're participating in the crisis they had helped to foment by refusing to honor loan modifications they had already agreed to," said attorney James C. Sturdevant, whose firm is assisting in the lawsuit.

Chase's Kishner said he could not comment on the pending litigation.

Joseph R. Mason, a professor at Louisiana State University's business school who has written widely on the subprime lending debacle, said he suspects the loan modification disputes are a legacy of the federal government's rush to stem the flow of foreclosures before it had adequate plans in place.

"These policymakers said, just go out and do this and don't let us worry about the details," he said. "These details are now what are coming to the fore in these modification cases."

Laurie Maggiano, policy director at the Treasury Department's Homeownership Preservation Office, said banks were encouraged to offer trial modifications based on interviews with borrowers about their incomes and expenses while they sorted out the paperwork to qualify for permanently reduced payments.

The banks were under no obligation to make trial modifications permanent until this June, when new regulations stopped loan servicers from offering the trials based on stated income, Maggiano said.

Now, incomes and other details are being fully vetted before trial periods, and borrowers are preapproved for a permanent modification as long as they make three trial period payments, she said.

She also said banks are only obliged to grant modifications if the investors who hold the mortgages also benefit from the modification, as mandated by the October 2008 legislation approving the bailout.

Those explanations provide little comfort to the Cascos.

"I think that banks are playing games with us," William Casco said.

Casco said his monthly mortgage payments to Washington Mutual Inc. went up to $2,765 when he refinanced his home in 2006 to pay for a new a meat counter at his store in the industrial Los Angeles suburb of South Gate.

Chase was in the process of acquiring Washington Mutual in January 2009 when Casco said it sent a note telling him he qualified for a lower forbearance rate. The El Salvador native sent the tax returns and business documents the bank was requesting.

His payment was reduced to $1,250, where it remained for several months until Chase told him to apply for a trial loan modification.

Again, Casco said, he sent Chase the documentation they requested. His payment rose to $2,363 in June, then returned to the forbearance rate in October.

Casco said he continued paying what he was asked until August 2010, when Chase told his family that they were $50,000 behind on their payments and put them into foreclosure.

The home has since been sold and Casco is currently fighting eviction. That has him considering joining an existing lawsuit against the bank or seeking support to file a suit on his own.

"I'm determined to do whatever it takes in order to keep my house," he said. "I feel that a great injustice has been done to my family."

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Moving from pity to empathy

  1. Transcript of: Moving from pity to empathy

    LESTER HOLT, anchor: The home mortgage crisis in this country has triggered a wave of foreclosures, shattering the dreams of countless families. But it has changed the lives in other ways, as well. Take the story of one real estate professional in Oklahoma , whose business is booming even as she sees the crisis hitting home . We get the story from NBC 's Ron Mott .

    RON MOTT reporting: Becky Watkins has her hands full. She works for her local sheriff's office near Tulsa as an appraiser of foreclosed properties. Today she's working her way through yet another stack of homes to value destined for the auction block. She jots down notes, takes a look around, snaps a photo or two, then off to the next one. Sometimes it all gets to her.

    Ms. BECKY WATKINS: I get very emotional sometimes. It's hurtful to see children's toys, clothes, shoes, bicycles. Sometimes they leave in the middle of the night .

    MOTT: She says the foreclosures she sees touch families at every income level. It makes her long for the not-so-distant good old days when home sales were booming, home prices rising.

    Ms. WATKINS: It was happy times for everybody. And maybe too happy, but still it was happy times .

    MOTT: But these days...

    DARRELL: But it's a no cost to you so...

    MOTT: ...she and husband Darrell , full-time firefighter, part-time home builder say it's much harder to find happy times . Darrell 's construction business took a big hit when the economy soured two years ago. The bills piled up, they fell behind. And now Becky is facing a fate she never imagined possible. The bank is foreclosing on her and her husband, and soon someone else could be coming to their doorsteps to do the exact same job she does, someone from her own office. It may be someone you know?

    Ms. WATKINS: It will be somebody I know.

    MOTT: Like many families, Becky says then tried to get their lender to modify their loan for months, almost two years now. Instead, in mid-August, the bank gave them a foreclosure notice.

    DARRELL: Coming in the house and seeing her working on the phone, you know, it's hard.

    MOTT: For Becky it's a startling turnabout.

    Ms. WATKINS: The time we started this house, never, never thought that it would get this bad.

    MOTT: Yet she refuses to give up, still investing in home repairs ...

    Ms. WATKINS: Many things unfinished.

    MOTT: ...hoping the worst won't happen. This is not a scene you want...

    Ms. WATKINS: No.

    MOTT: ...repeated at your place?

    Ms. WATKINS: No, absolutely not. Never want -- never want to feel like I'm in this final position, no, where you have nowhere to go except to leave.

    MOTT: From sympathy to empathy on the front lines of foreclosures. Ron Mott, NBC News, Wagoner, Oklahoma.

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