Four years after the subprime mortgage crisis hit, and two years after New London organizations used $2 million to help turn around hard-hit neighborhoods, foreclosures are still a major problem for the city.

In April 2009, according to city assessment records, New London had 95 foreclosed homes on the tax rolls; this past April, the number was 91, which includes bank-owned properties, recent deeds-in-lieu of foreclosure and 65 condominium units at the Gull Harbor complex that went into foreclosure in October.

The Warren Group, which tracks New England real estate data, reported a similar trend, with New London foreclosures and foreclosure filings, which don't always lead to a property owner's loss of a home, falling only slightly, from 312 three years ago to 296 last year.

Yet the city hasn't seen the worst of the problem, said Julie Savin, director of real estate development for NeighborWorks/New Horizons, a nationwide affordable-housing association that operates an office in the city. Many of the adjustable loans from 2006 and 2007 will be resetting in the next two years, adding an average of $500 to $800 more a month to a typical mortgage payment, she said.

"People are going to be in great jeopardy when this starts to happen," Savin said.

Jeff Gentes, foreclosure-prevention staff attorney at the Connecticut Fair Housing Center, said so-called negatively amortizing adjustable rate mortgages, in which payments balloon after a few years, have largely replaced subprime loans as the biggest problem the housing market faces going forward.

Given the weight of the current foreclosure problem, "the housing market is not going anywhere for the next four years," Gentes predicted.

Yet foreclosures in Connecticut have slowed over the past few months, according to statistics kept by the Connecticut Housing Finance Authority.

Gentes explains this by saying that takeovers of properties may have been artificially reduced as some banks were forced to stop illegal "robo-signing" practices - the rubber stamping of foreclosure paperwork that had previously sped cases through the legal system.

He expected foreclosures through the end of the year, though, to be processed at a brisker pace.

"There's still a residue of unemployment and underemployment," he said, making it hard for people to avoid foreclosure.

And the tide of foreclosures, he added, is starting to drift from the cities to the suburbs. East Lyme, for instance, had 34 lis pendens filings - the initial notice of foreclosure - three years ago, but 63 last year. New London, on the other hand, went from 158 lis pendens to 168, and its total foreclosure-related filings were actually down during the period.

"The foreclosure rate is way above crisis level and will probably continue for three years or so," Gentes said.

New London efforts

Officials in the New London Office of Development & Planning have been busy trying to stem the tide.

They are finishing up a two-year Neighborhood Stabilization Program that injected $867,850 in federal funds, $250,000 in city money and nearly $1 million in private or state donations to buy up and rehabilitate 11 foreclosed properties in the center city. In addition, they are awaiting $400,000 in federal funding to revive four other foreclosed properties in the city.

In another attempt to get foreclosed properties back into the hands of homeowners, the City Council this year allocated $100,000 for down-payment assistance to New London home buyers. People who buy vacant homes in the city are eligible for forgivable loans of up to $5,000 if they live in New London for five years; others who buy occupied homes can get up to $2,500.

"It's to promote owner-occupancy," said Judi Cox, loan specialist for Development & Planning. "It's to get people living and buying in New London."

A 24-year-old city firefighter is among the more than a half-dozen people who have applied for the month-old program. Four loans have been approved so far.

But everyone involved in efforts to reduce the number of foreclosed properties in New London acknowledges that it will be a long time before the problem goes away. Of the 95 properties that had been turned over to banks two years ago, the Neighborhood Stabilization Program was able to buy up only six of them; five others that were foreclosed on later also were snatched up for rehabilitation.

So far, five of the program's home renovations have been completed and three have been resold. The other six homes should be ready for occupancy by the end of the year, said Tom Bombria, community development manager for the city.

"It's been a big boon for New London," he said of the $2 million infusion of housing funds.

A warm home of her own

For people such as Dayana Fuentes, 29, who bought a Habitat for Humanity home on Cape Ann Court acquired through the program, it's brought a sense of relief.

"We're safe, and basically we're moving up," she said.

Fuentes and her family of two girls and one boy, ages 2 through 9, had been crammed into a two-bedroom apartment before moving to Cape Ann Court just before Christmas of last year.

She recalled that a Chinese restaurant had refused to deliver to her former neighborhood after a delivery man had been mugged. Her former apartment, she added, featured mold in the basement and drafty windows.

"The heat cost us more than the rent," she said.

Now, the kids have a fenced-in back yard in which to play, she said, and the newly built home has inspired several neighbors to give their places a facelift.

"We're comfortable. We're warm. It's stable living," she said.

The city has been working with four nonprofit organizations to complete the program: Eastern Connecticut Housing Opportunities, or ECHO; Housing Opportunities for People, or HOPE; Neighborworks and Habitat for Humanity. Each has brought its own funding sources into the equation, helping expand the scope of the overall project.

Marilyn Graham, executive director of HOPE, said marketing the program's properties has been difficult in the current real estate market. She has had to reduce the price on a West Coit Street house from $135,000 to $125,000.

"You have to price them low today because there's such a glut in the market," she said. "When there's a bargain, people will jump to it."

But Graham and Peter Battles, ECHO's executive director, agree that rehabbing old homes in the city isn't about getting a return on investment. It's about getting people into affordable homes and making sure foreclosures don't overwhelm areas of the city hit hard by too many eyesores.

"There's certain neighborhoods where one bad apple is really noticeable and can drag down adjoining properties," Battles said.

Foreclosure competition

One positive trend is that foreclosed properties don't stay on the market too long these days. Of the 95 properties involved in foreclosures two years ago, only one remains on the list today.

"The banks finally decided it didn't make sense to hold onto properties - they needed to take a loss," said Savin of NeighborWorks.

Terri O'Rourke, executive director of Habitat for Humanity of Southeastern Connecticut, said that investors and nonprofit housing groups are often bidding on the same properties today.

But Savin said business people with deep pockets sometimes have an advantage if they can pay in cash and quickly wipe out a scar on the bank's balance books. Nonprofits, she said, argued successfully with a few banks that they would be more responsible in doing first-class rehab work to turn neighborhoods around.

"It was a big game we were constantly playing," she said.

Despite the obstacles, Savin and others said they think the neighborhood stabilization program has made an impact, especially in the Hispanic and African-American communities. The Hispanic community, particularly, was hit hard by New London mortgage scams led by Jose Guzman and Syed A. "Ali" Babar, she said.

Neighborhood stabilization funds didn't go into the worst eyesores - that would have eaten up too much of the money on too few properties, Savin said - but instead were focused on homes that needed a moderate amount of work in areas hardest hit by foreclosures. The best results were seen in the West Street-Center Street-Connecticut Avenue area, she added.

"The minority neighborhoods have definitely suffered the most in this banking crisis," Savin said. "I think we made a substantial impact."

l.howard@theday.com