Connecticut is among hardest hit by mortgage foreclosures

Groton - Diane Farrar never thought she'd lose her two-bedroom home on Country Club Road that she's lived in for 13 years.

But that day has come and gone, and now she's busy packing, one of more than 10 million homeowners affected by the nationwide foreclosure crisis in the past four years.

Statistics from the property-data company CoreLogic show Connecticut in December of last year ranked number seven nationally among all states in the percentage of houses that were on the market because of a foreclosure. Jeff Gentes, managing attorney for foreclosure prevention at the Connecticut Fair Housing Center in New Haven, said one out of every 11 homeowners in the Norwich-New London area is 90 days or more behind on his or her mortgage payments.

"I think I'm a victim of the whole mortgage crisis," the 49-year-old Farrar said. "I really do believe that because I have equity in my house they're coming after me."

Officials with her lender, McCue Mortgage, based in New Britain, said they couldn't discuss specifics of the Farrar case because of privacy laws. But Kate McCue, an executive vice president for the company, said the firm works hard to help people avoid foreclosures and it doesn't treat homeowners with equity any different from people whose properties are worth less than what they owe on a mortgage.

"One of the greatest challenges are people who don't respond," McCue said. "Talk to your servicer - don't hide from them. Open your mail and tell them what's going on."

McCue said homeowners need to understand that late mortgage payments are more damaging to a person's credit rating than late credit card payments.

"Paying your mortgage first should be your No. 1 priority," she said.

Farrar, a former housing specialist for the Navy who says she was laid off after taking a medical leave to help care for her dying mother, is still fighting the sale of her home, arguing it didn't fetch a high enough price.

But she's resigned to leaving in the next few weeks and has started selling off belongings in anticipation of moving to Florida to be near her sister.

"She did the right thing," said neighbor and friend Laura Bradley of Round Hill Road. "She put the house on the market, but it didn't sell."

A court-ordered appraisal of the 1,271-square-foot, Cape Cod-style home puts its value at $180,000. At a foreclosure auction last month, there were only two bidders - including McCue Mortgage Co., which made the first offer to cover what it was owed - and the house was purchased by a private buyer for $135,600.

That's about $100,000 less than what the home was worth at the height of the real estate market. But it's almost exactly the amount of money Farrar owes to McCue after penalties, unpaid interest and legal costs are added to the $111,000 loan balance as of late 2010, when her lender started foreclosure proceedings.

Farrar said she had worked out a temporary agreement with McCue to reduce payments and had been hoping to restructure the loan. But the mortgage company refused to budge, she said, serving her with foreclosure papers in November 2010, even before a three-month forbearance period the two sides had negotiated in arbitration sessions had ended.

"The banks have gotten out of control," Farrar's friend Bradley said. "They've lost their community spirit. They've lost their willingness to work with people."

Late last week, five of this nation's largest banks agreed to a record $26 billion settlement that was part of a broader nationwide pact holding banks accountable for foreclosure abuses. The settlement, announced Thursday after months of talks between bankers and government officials, would include about $119 million in benefits for Connecticut. An estimated 7,500 borrowers in the state who already lost their homes to foreclosure could qualify for about $1,500 or more in cash payments.

'A temporary fix'

Victoria Gowlis, a housing counselor for Catholic Charities in Norwich who tried to help Farrar avoid foreclosure, said several mortgage companies have programs in place to try to help people avoid foreclosure.

As for McCue, Gowlis said, "I work with them all the time. They're willing to work with people as long as it makes sense."

Editor's note: This sentence corrects an earlier version. But if people can't keep their mortgage payments to a maximum of 31 percent of their gross monthly income, she said, it's often difficult to work out a loan modification. The best modification she has ever seen shaved only $500 off a monthly mortgage payment, Gowlis said, so people with extended, major income losses often will not be able to stay in their homes.

Gowlis, who with one other Catholic Charities housing counselor has a rolling list of 300 clients every month, said there are a variety of state and federal programs to help people facing foreclosure, but it's important for those in distress to get help as soon as they are at risk of missing a payment.

"Every loan is different," she said. "Any type of modification is like going and looking for a new loan."

Often, people put off dealing with a problem by charging everyday items to their credit cards, which only exacerbates the problem, Gowlis said. Others cash in their 401(k) retirement funds, which in many cases only puts off an inevitable foreclosure.

"What they're doing is just a Band-Aid," she said. "It's a temporary fix."

Statistics back up the notion that people in the Norwich-New London region, which includes Westerly, are having a particularly difficult time in keeping up with their mortgage payments. The region, which has lost nearly 10,000 jobs since the latest recession, was ranked 39th nationally in the second quarter of last year among 366 U.S. metropolitan areas in terms of the percentage of problem loans - second worst in Connecticut, after New Haven County.

"Everybody's laying off," Gowlis said.

According to Gentes at the Connecticut Fair Housing Center, Connecticut is only at the midpoint of the foreclosure crisis, which began in 2009. And while the subprime loan problem isn't as severe today as it was at the beginning of the crisis, he said 24.1 percent of local homeowners with these mortgages are considered to be in distress today compared with 3.8 percent of families with conventional loans.

'Emotional, stressful process'

McCue said her company looks to do modifications or "partial claims" (placing overdue payments at the end of a loan) wherever possible, but not everyone has enough income to make them feasible. Mortgage companies are constrained by federal regulations from making loans to people who don't qualify, she added.

"At some point, decisions need to be made, but they're not always the easiest," said McCue spokesman Rich Scierka.

McCue Mortgage officials said they take homeowners in trouble through a financial analysis process to try to show them how to save money and avoid foreclosure. And when foreclosure is inevitable, McCue said, the company works to minimize a homeowner's loss of equity.

"It's a very emotional and stressful process," she said. "We've certainly ramped up our efforts to keep up communication."

But Farrar said she still doesn't understand where it all went wrong.

She had been making her mortgage payments on time, she said, but was having trouble paying off a $6,000 debt to McCue that she incurred in a previous bankruptcy after an earlier layoff. Farrar had hoped the debt, which she had been paying down for three years in $300 increments, could be added onto the end of her mortgage, but McCue refused to do a permanent loan modification, she said, and she simply couldn't afford both payments.

The foreclosure, she said, came out of nowhere. Farrar said she sent in her mortgage payment for the full amount and on time, but McCue returned the check, indicating the company couldn't accept money because the home was in foreclosure.

"I couldn't believe they wouldn't take my money," Farrar said.

What infuriated Farrar even more is that she had been led to believe the $6,000 debt had been discharged in bankruptcy court.

Farrar said she tried to work out an agreement with McCue during foreclosure mediation, but found the company unwilling to compromise on the $6,000 it was owed. McCue, she said, insisted on a lump-sum payment up front before agreeing to any sort of permanent restructuring of her loan.

"I told them I don't have $6,000 to give you - I am unemployed," Farrar said. "They weren't making it easy for me."

Bankruptcy didn't save house

Farrar, who once rubbed elbows with singer Tony Bennett and the late comedian Victor Borge as a bartender for the high rollers and VIPs at Foxwoods Resort Casino and has managed restaurants in Florida, said she tried finding work but without success. She also applied for the federal Emergency Homeowner Loan Program, but failed to qualify because she sought help after becoming delinquent on her mortgage payments.

Sitting in the small dining room of a home that she shares with two pugs, Princess Paris and Snoop Dogg, as well as a cat named Kali, Farrar said in hindsight she wishes she had sold the blue-and-white house when it was worth $250,000 rather than go through bankruptcy in an attempt to save it.

"People think bankruptcy saves a house," Farrar said. "Not in my case."

But at the time she considered the place her home, not an investment, and she couldn't imagine living anywhere else.

"We always had all the family gatherings here," she said.

The winter holidays would mean up to a dozen family members congregating inside the cozy home. And every summer Farrar hosted a huge outdoor picnic in a fenced-in back yard with a deejay that would attract up to 100 people.

"The whole neighborhood would rock," Farrar said.

Those days are over.

Last week, she found out her unemployment benefits have run out, so she will be traveling this week to Florida - courtesy of family help - to try to find a job.

Farrar has been peddling household items to stay afloat. As the items are carted off by strangers, the home looks emptier every day.

"It's sad getting rid of my belongings, but at least people are buying them," she said. "I have to part with all the stuff that I love, everything I have accumulated over the last 13 years."

The foreclosure forced her to sell even her washer-dryer and refrigerator, appliances she would have gladly left for new owners if she had been able to sell her home for what it is worth.

"It's hard to start over," she said, "but I don't really have a choice."

l.howard@theday.com