Holding on in the face of foreclosure

David and Donna Hadley's fight to keep their Virginia Beach home started last summer when they missed two mortgage payments.

For nearly a year, the couple struggled with shrinking income and a mortgage payment that fluctuated month to month. The couple had made some poor decisions earlier when refinancing their home, and when David's work as a custom-cabinet maker began to slow down, the bills began to pile up.

Their lender, Countrywide Financial Corp., now a unit of Bank of America, sent the couple a notice of default, warning of foreclosure if they didn't make up the missed payments.

The Hadleys are trying to renegotiate the terms of their home loan, but they have found that options to keep people in their homes are scarce.

"We feel like we're just swimming upstream," Donna Hadley said.

While there's been a lot of talk about foreclosure relief in Washington, no workable federal program has emerged. The most common strategy is for home-owners to attempt to negotiate a loan modification with a lender to bring down or stabilize mortgage payments. That process can take months and be very complex.

"Basically you're going through the mortgage process all over again," said Jumana Bauwens, a spokeswoman for Countrywide. "Not only do we have to document your financial history from the beginning, but we need a financial hardship letter, your W-2 and other information. Then on top of that, we have to get investor approval."

And home-owners who haven't yet missed a payment tend to take second priority to those who are already in default, Bauwens said.

The Hadleys' Kings Grant neighborhood has not been a hotbed of foreclosure activity, but foreclosures have increased across the region. Foreclosure-related activity is up 175 percent from year-ago levels, according to RealtyTrac, an online foreclosure-monitoring service based in Irvine, Calif. In January, one in every 656 homes in the region had a foreclosure-related filing.

The Hadleys began calling for help in July, hoping the lender would allow them to tack the missed payments onto the end of the loan and modify the terms to give them a fixed interest rate and a predictable payment.

Six months and dozens of calls later, little has changed.

"We get a different person every time, and we have to tell them our story all over again," Donna Hadley said. "I think they want to work with us, but their backlog is so big. So many people are in worse shape than us."

Just last month, the Hadleys thought they had reached an agreement to modify the loan with Countrywide, but when the paperwork arrived in the mail it didn't include the same terms they'd discussed, Donna said.

The couple didn't buy their home during the local housing boom. They purchased it in 1999 for $235,000. Five years later, an appraisal valued it at $500,000.

At the time, David, 45, ran a cable installation business. As work began to wane in 2004, the couple refinanced with an adjustable-rate mortgage to help make ends meet and pay off debt from his business. The loan's interest rate is tied to the London Interbank Offered Rate, or Libor, so the payment fluctuates monthly.

"If I had done my homework on it, we probably wouldn't have done it," said Donna, 48. "We would have just declared the business bankrupt."

Three years later, as home values peaked, the couple took out a second loan against the house to begin renovating the kitchen. Some of the money also went to buy equipment for David's cabinetmaking business.

Earlier this decade, refinancing became a popular method of consolidating debt and paying for home improvements, said Steve Rockefeller, vice president of SunTrust Mortgage's Virginia Beach office and past president of the Tidewater Mortgage Bankers Association.

"In 2005, 2006, the prices of houses were going up faster than anyone could count," Rockefeller said. "People went and cashed out, then, like the American way, they ran up the debt again."

Kevin Harris, a housing counselor and lending consultant for Community Housing Partners in Virginia Beach, said many home-owners expected to be able to refinance before their adjustable-rate mortgage payments reset to a higher rate.

"Blame can kind of go around on this one," he said. "Some people say their lender didn't tell them how the adjustable rate would work. Some people got the adjustable rate because they were doing well and they just thought their situation would get better, and if it didn't, they would just refinance. Then people fall on economic hard times, and they cannot refinance."

Chesapeake resident Connie Pitt, 60, bought her home in 1999 for $69,000. During the course of the next six years she refinanced the three-bedroom home three times.

"I was behind on some bills, so I said, 'Maybe if I refinance I can do something about it,' " she said.

Later, she decided to renovate her house and install central heating and air conditioning. Refinancing again seemed like a good option as her home's value continued to rise, she said.

With each new loan, Pitt's mortgage payment of $600 grew several hundred dollars, eventually reaching the $1,600 a month she pays now.

Pitt, who works as a housekeeper to support herself and her disabled son, now owes $163,000 on the home in Ahoy Acres.

"I wished I would have let it stay the way it was," she said.

Although Pitt has never missed a payment, she said she fears that could be around the corner.

She tried contacting her lender to try to refinance again to bring her payment down, and she's been looking for a second job without luck.

"I am just trying to hold on to the home any way I can," she said. "The first of the month just drains me dry."

Her story has become increasingly common, said Harris, the housing counselor. His group helps home-owners facing foreclosure through the process of getting their loans modified and counsels them on ways to prevent losing their homes.

The number of people coming through his office has doubled in recent months.

"Some days can be overwhelming," Harris said. "I don't think anyone was really prepared for the work they'd have to do. It's a mess."

In some cases refinancing can bring payments down, but it typically isn't an option for those already behind on their payments.

In October, the Federal Housing Administration rolled out Hope for Homeowners, a plan aimed at helping those at risk of default and foreclosure to refinance their loans. Lenders won't participate, critics say, because they have to voluntarily reduce the value of a loan, resulting in a loss.

The program isn't working, said Harris, whose agency is part of the Hope Now alliance of housing counselors approved by the Department of Housing and Urban Development.

"A lot of lenders just aren't participating," Harris said. "When you call the lenders, they just say they don't know what that is. It needs to be tweaked."

Last month, the Hadleys turned to Community Housing Partners and Harris for help.

By then, they'd considered bankruptcy. They'd dropped their health insurance. David weighed closing the cabinet shop and seeking work at a hardware store. Donna, a homemaker for years, began looking for part-time work to help pay the bills.

"I had a dream last night that I was working at 7-Eleven," she said. "I didn't really like it, but I'd do it if they'd hire. Nobody is hiring."

After meeting with Harris, they are hopeful they'll be able to save the house.

"When I first walked into Kevin's office, I told him I didn't think he'd be able to help us," Donna said. "But it's nice to feel like we have someone else on our side."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com