Connecticut's foreclosure crisis spreads far and wide
By Daniel D'Ambrosio
January 27, 2009
Betty McCree will know her fate in about two weeks. Either the 61-year-old African-American single mother of two grown children will be able to stay in her large, two-family home on Bridgeport's North Street, or she won't.
McCree is about $30,000 behind on her mortgage. The trouble started when she had to spend $7,000 to replace the floor underneath a toilet in a rental home she also owns in Bridgeport — the property she was counting on to provide a retirement.
But the rental sat vacant for months on end, and the problems with the toilet and other misfortunes drained cash that would have gone to staying current on her primary mortgage. Ironically, McCree's rental house isn't threatened with foreclosure. Just the home she lives in.
"It is all I can do to not feel totally defeated," McCree said recently, sitting at her dining room table with me and Bill Kadish, a grassroots foreclosure activist who has helped about 20 people stay in their homes in the past year.
Kadish, who spent 22 months fighting to save his own house in Milford, is now helping McCree in her negotiations with the bank holding her mortgage. He's optimistic that she'll be able to stay in her home.
"I think it's going to work out," Kadish said.
McCree isn't so sure.
"I was a little reluctant to talk about it because they haven't decided what they're going to do with me yet," she said.
Dodd Calls for Direct Aid
The specter of foreclosure is stalking Connecticut, and the nation, like never before. At a recent event in Hartford, Sen. Christopher Dodd, chairman of the Senate banking committee, revealed that 9,000 people a day are going into foreclosure in the United States.
"We've lost 16,000 to 17,000 homes to foreclosure in the state of Connecticut," Dodd said, pausing to let the number sink in among the crowd packed into the Rajun Cajun restaurant's booths and tables.
Dodd and many others are calling for vigorous federal intervention in the foreclosure crisis — something rivaling the $350 billion giveaway to banks late last year that has everyone wondering what we got for our money. This time, the money would directly help people, not rely on the "trickle-down" model.
"My hope is Barack Obama will declare a national moratorium for 90 days on any other foreclosures, just to stop it," said Dodd. "Secondly is to use some of these dollars in the stimulation package or TARP money to mitigate foreclosures."
The best idea Dodd has heard on dealing with the national foreclosure crisis, he said, came from Sheila Bair, chairman of the Federal Deposit Insurance Corporation. Bair wants the federal government to guarantee 50 percent of any losses a bank incurs from writing down mortgages to a "place that's affordable to that homeowner," said Dodd.
"Sheila Bair is the only one to step up in [the former Bush] administration," said Dodd. "In fact I've urged Obama to keep her on the job."
Karin Nigol of the Housing Education Resource Center in Hartford has been dealing with foreclosure issues in the poorest city in the richest state for 25 years. Nigol says she has never seen anything like the current crisis.
"We noticed three or four years ago that there started to be somewhat fast and loose lending," Nigol said. "We have been dealing with predatory lending since the early 90s. Right away our red flag went up and we thought 'Something bad is going to happen here.' But I don't think any of us thought it would get to this extent."
Nigol, who advises people trying to buy homes as well as those caught in foreclosure, said it was easy to see in pre-purchase counseling that borrowers were headed for a fall.
"I would literally call up lenders and say, 'I don't know who you're approving, but according to our financial analysis there's no way these people can afford this house,'" Nigol remembered. "They would say they had exceptional underwriting criteria."
Now many of those "exceptional" loans are in foreclosure. But it's not just subprime loans — given without proper regard for the borrower's ability to pay — that are biting the dust, according to Nigol. She said that beginning last summer, HERC started seeing clients with incomes "well into the six figures" who are either in foreclosure or flirting with foreclosure, thanks to falling home values.
"What's happened is many people are upside down in their mortgage; the house is not valued at the amount they paid," said Nigol.
People are losing good-paying jobs, said Nigol. And salaries inflated by overtime or commissions are plummeting because of the sputtering economy.
Rural Areas Suffer, Too
Neither is the foreclosure crisis restricted to the state's urban areas. The highest foreclosure rate in the state, according to John Filchak, executive director of the Northeast Region Council of Governments, is to be found in Plainfield, a sleepy eastern Connecticut town within spitting distance of Foxwoods and the Mohegan Sun.
In a letter addressed to the Department of Economic and Community Development, Filchak and his fellow commissioners from the Southeast and Windham councils of governments put the foreclosure rate in Plainfield at 35 per every 1,000 households, double the average rate in the state of 17 per 1,000 households.
"If I have 5,000 households that means I have 175 foreclosures in my town," said Plainfield First Selectman Paul Sweet. "That's probably a good number. It could be worse than that."
Sweet's family has been in the state for 11 generations. His ancestors "got off the boat at Stonington Harbor" in the 17th century. Sweet returned as first selectman in 2007 after a six-year hiatus. His first run, from 1989 to 2001, stretched for 12 years, and he was burned out at the end of it.
"I never thought I'd be in public life again," said Sweet, speaking in his modest office in Town Hall.
Later at O'Connor's Steak and Seafood, Sweet sat next to a table of four constituents he had known and worked with in the construction business for years. A woman at the table who declined to give her name said her neighborhood was riddled with foreclosures, which can be the kiss of death for the remaining houses on the block.
In an August 2008 study, the Center for Responsible Lending projects there will be nearly 2.2 million subprime foreclosures through the end of 2009, resulting in a loss of value for the 40.6 million homes surrounding those foreclosures of $352 billion, or $8,667 per home. That includes a neighborhood in Plainfield, Connecticut.
Erin Boggs of the Connecticut Fair Housing Center knows why Plainfield and other eastern Connecticut towns have been hit hard by foreclosures.
"If you look at where the subprime loans [in Connecticut] were made, many were made in the Northeast, so it's not surprising there's a big problem in that part of the state," said Boggs.
Still Boggs said her organization is focusing on the big numbers of foreclosures, which are still in the state's urban centers.
"Right now we're trying to deal with the fact that there are 1,000 new foreclosures filed every month, and of those 600 to 700 are people who don't have attorneys," said Boggs, an attorney herself. "We have limited resources so we're focusing on Hartford and New Haven. That's where we're seeing most of the cases."
Filchak is still making the case for eastern Connecticut, asking DECD, responsible for administering $25 million in federal funds to stabilize neighborhoods devastated by foreclosures, to take a second look at his towns.
In their Nov. 18 letter to DECD, Filchak and his fellow commissioners write on behalf of "our 41 Eastern Connecticut Towns" to implore the agency to reconsider its decision to provide no Neighborhood Stabilization Plan funds to any of those towns.
"This Route 12, Route 395 corridor gets forgotten. The population of Plainfield being 15,000, it doesn't register," Filchak said. "But if we aggregated these villages and didn't tell you where it was you'd think it was Hartford in terms of foreclosure rates and different social issues. We've got the highest rate of teen pregnancy in the state."
Michael Santoro, a community development specialist with DECD, rejects Filchak's contention that the agency ignored eastern Connecticut when it passed out NSP funds.
Santoro says that while it's true that nearly $22 million of the $25 million is earmarked for Bridgeport, Waterbury, New Haven, Stamford, Hartford, Meriden and New Britain — with Bridgeport getting the biggest cut of $5.8 million — some money has the "potential" to go to eastern Connecticut.
As a result of public comments like Filchak's, DECD did modify the plan to make $2.6 million available to nine additional communities including Norwich and New London in eastern Connecticut. These "second tier" communities will have to compete for a share of those funds, however, as there's not enough money to go around.
The funds are intended for a "handful" of activities, said Santoro, including acquisition and rehabilitation of foreclosed properties; demolition and redevelopment; and loan guarantees to help a homeowner buy a foreclosed property.
The Snowball Builds
Once Bill Kadish began falling behind on his $5,000 monthly mortgage payments, his bank refused to take partial payments against the quickly building arrearage. It was all or nothing. The same thing happened to Betty McCree with her $2,800 monthly payment.
"The thing is, they got you," said Kadish. "Here's a snowball getting bigger and bigger. It becomes huge, unmanageable. By month four or five they send you a letter. Then the sheriff shows up at your doorstep."
Kadish reached the point where he was 22 months behind, with an arrearage of more than $100,000. Battling to save his house, he represented himself in a Chapter 13 bankruptcy filing that finally convinced the bank to withdraw its foreclosure action last February after Kadish threatened to convert his Chapter 13 to Chapter 7 and bail out.
"I made this argument in my own case: What choices do you have if we throw the keys up in the gutter and walk away?" said Kadish. "Who's going to buy this house?"
Kadish received a loan modification that allowed him and his wife to stay in the house. The arrearage was tacked onto the end of the loan. They'll have to deal with that in the future.
His own experience drew Kadish to the Rev. Marjorie Nunes of Summerfield United Methodist Church in Bridgeport. Nunes has made saving homeowners from foreclosure part of her ministry, and together with Kadish she formed Divine Mortgage Solutions in the basement of her church to help foreclosure victims. Nunes recently applied to the IRS for nonprofit status for the organization.
Kadish said he'll be phasing himself out of Divine Mortgage in the coming months because he has bigger ambitions in mind. Through Nunes, he met local reggae musician Mutti Lewis last year, whose home is also in foreclosure. Bonding over their shared agony — Kadish is currently trying to keep Lewis in his home — the pair formed an organization called Face the Music to raise money for foreclosure victims through concerts, a concept they eventually hope to take nationwide. Think of it as Farm Aid for the subprime set.
Face the Music launched with a performance in Norwalk on Jan. 18 that was attended by newly elected Congressman Jim Himes. Kadish has contacted Bridgeport's Harbor Arena, the Fairfield Theater Club, the Chevrolet Theatre in Wallingford and other venues to try to line up more concerts, and plans to invite Himes, who was recently appointed to the Housing Subcommittee of the prestigious House Financial Services Committee, to speak at future events.
"Creative, community-based solutions should be an integral piece of our efforts to stem the home foreclosure crisis," Himes told the Advocate. "We must draw upon all the resources at our disposal, including public, private sector and nonprofit solutions, to keep families in their homes and help stabilize the economy."
State Mediators Offer Help
Betty McCree is not alone to face her banker's attorney in the negotiations to avoid foreclosure. Kadish is with her, and so is Shaun McGrath of the state judicial branch's foreclosure mediation program, formed in July 2008.
"He's really good, very flexible and very aggressive," says Kadish of McGrath. "If you have a chance to save your home, he'll push it for you."
The mediation program is the first of its type in the country, and program manager Roberta Palmer said she's getting calls from states as far away as California — ground zero for the foreclosure crisis — to find out how Connecticut is running it.
The 12 mediators working in the program had completed 954 cases as of Nov. 30. Of the completed cases, 519 people, or 55 percent, were allowed to stay in their homes; 155 people, or 16 percent, had to move from their homes; and 280 people, or 29 percent, were not able to settle. That's a settlement rate of 71 percent.
"The results are pretty amazing even to me," said Palmer.
Because there's no program like it anywhere else in the country, it's impossible to put the foreclosure mediation program's results into any kind of context. But Palmer said she's confident her mediators are making realistic deals that give homeowners a chance to succeed, which is more than you can say for many such deals. Banks are notorious for the stinginess of their loan modifications.
"When you talk to people in loss mitigation in HUD they say loan modifications statistically don't prove to be a solution," said Palmer. "Most people fail on the modification as well. I strongly believe our loan modifications are different."
Kevin Williams, an attorney in the judicial branch who was formerly working as a courtroom clerk, is one of two mediators chosen for the Hartford area. He said he works on between five to eight cases daily, and has some simple advice for homeowners in trouble.
"The first thing you want to do is be in contact with the bank," said Williams. "People want to hide their heads in the sand. With a house, that's the worst thing you can do. In a very short amount of time you could be foreclosed on and out of there."
Williams begins by hearing the homeowners' stories of how they came to be in foreclosure, which he calls "some of the most heartbreaking things you'll ever hear."
"It can be as simple as 'I had a boiler blow,' to 'I had heart surgery and the bill is $80,000,'" said Williams. "The stories are just terrible. A majority have had some sort of health issue in the family. They've become unemployed or underemployed. That's what starts this snowball."
In his time in the judicial branch, Williams has worked on divorce cases and child custody cases, but he says foreclosures are as emotional as anything he's dealt with.
"There's a lot of shame associated with foreclosure," he said. "One of the first things I hear from people is they don't want to have a sign go up on their property."
So far, there's no sign in front of Betty McCree's rambling 1920s-era home on North Avenue, the dream home she bought in 1994 after working for 16 years as a civil rights investigator for the state. McCree left that job in the early 1990s, but today she's working seven days a week, teaching classes at a nonprofit in Stamford during the week, and working as a security guard on the weekends.
"When you fall in a ditch it takes a long time to get out, and I've been clawing to get out," said McCree.