Living in the shadow of foreclosure

Living in the shadow of foreclosure

July 14th, 2013 by Ellis Smith in Business Around the Region

Johnny Garth, right, shows his wife Joyce a bible passage he had been studying Thursday at the kitchen table of their home in Chattanooga, Tenn. The Garths almost lost their home to foreclosure by Wells Fargo Bank last year, but Chattanooga Neighborhood Enterprises helped the Garths keep their home.

Photo by Doug Strickland /Times Free Press.

Foreclosure prevention

• Chattanooga Neighborhood Enterprise works to stave off foreclosure in Chattanooga through forgivable loans of as much as $40,000 for up to three years.

Eligible borrowers must meet one of five qualifying hardships:

• Unemployment

• Reduction of income

• Divorce

• Death of a spouse

• Long-term disability

• CNE in 2013 gave almost $13 million of assistance to 323 homeowners so far.

• Stopping foreclosures prevents as much as $151,000 in negative impacts, which means that CNE has stopped $48.7 million so far in 2013

• Since 2011, the 515 homeowners CNE has helped save from foreclosure represent $77.7 million of negative impact prevented.

Source: Chattanooga Neighborhood Enterprise

Homeowners approved for assistance in Chattanooga:

2011: 24

2012: 168

2013: 323

Total: 515

Source: Chattanooga Neighborhood Enterprise

The costs of foreclosure:

$75,000 - negative impact on neighboring home values

$50,000 - average loss for lender in lost principal and interest and extra foreclosure expenses

$19,000 - extra costs and lost revenue for local government

$7,000 - average homeowner loss

Source: Joint Economic Committee of Congress

A letter comes in the mail, stacked on top of a pile of past-due bills. The bank wants the house. Pack up and get out. The world seems to slow. In an instant, the newly-dispossessed homeowner realizes that the American dream has slipped away.

Formerly friendly banking buddies stop returning phone calls. Appeals for leniency fall on deaf ears. Appointments are canceled. Waiting on hold becomes a full-time job.

It's not always like the movies portray it -- irresponsible spending and lavish lifestyles; the foolish getting their just desserts. It's also less common today than it has been in years, thanks to a thawing housing market and a rush to allocate unspent government funds designated to prevent foreclosure.

Chattanooga residents James Crockett and his wife, Mary, were almost among a shrinking number of homeowners to fall victim of the burst housing bubble.

James Crockett -- his friends call him Mike -- started having seizures in 2007 and had to quit his job as an insurance salesman because doctors wouldn't let him drive. Just a few years before, in 2003, his wife had been forced to quit her nursing career because of her own struggle with a chronic illness.

"Every time you have a seizure, that's another six months you have to go without driving," Crockett said.

First, he used up all his accumulated vacation time. Then he worked his way through his sick leave. As a purveyor of insurance policies, he was lucky enough to have both short-term and long-term disability insurance, both of which he burned through while waiting for approval on his application for Social Security Disability Insurance.

He wasn't approved for Social Security until August 2010, at which point the family finances had deteriorated to the point where they were in worse shape than Crockett's health.

"We were upside-down, big time," Crockett said. "Everything that we had planned for our retirement was eaten up in medical bills and just trying to stay afloat."

Members of the Eastwood Church, where the Crocketts attend, helped to cover the $650 monthly mortgage and keep the family caught up.

But it wasn't until December 2012 that a government program designed to help foreclosed homeowners finally kicked in and began paying the Crockett's mortgage.

In a case of too little, too late for many homeowners, that program is ramping up to full speed just as the need for government assistance across the nation has decreased to pre-recession levels.

According to the firm RealtyTrac, foreclosures in June hit the lowest level seen since 2006, and lenders initiated foreclosure proceedings on just 57,000 homes last month, the lowest level seen in more than seven years.

The government's rescue program, meanwhile, is just getting started.

Maligned by watchdogs as the worst-managed part of the Troubled Asset Relief Program, the federal Home Affordable Modification Program was supposed to help as many as 4 million Americans stay in their homes. But it only reached 500,000 people before Neil Barofsky, special inspector general for TARP, stepped down in 2011.

The Home Affordable Modification Program and the related Hardest Hit Fund were designed to help deserving homeowners stay in their homes in spite of job loss or a death in the family. But the rules made it difficult for many to qualify, and outreach was hampered by a host of scams and schemes that sounded similar to and were better marketed than the government program, officials have said.

Tennessee struggled to give away its allocated $217 million, spending only $5.2 million by the end of 2011, and a cumulative $29.8 million by the end of 2012. The deadline to allocate all the federal cash is December 2014, and all payments must be complete by the end of 2017.

Thankfully for those in charge of distributing the cash, rule changes that allow for a broader definition of "hardship" have accelerated the process of giving money to underwater homeowners across the state and locally in Chattanooga, even as the number of properties in Tennessee that received a foreclosure filing fell 11 percent from the prior month, and 28 percent down from the same month in 2012, according to RealtyTrac.

"We've expanded over and over again what would make people eligible," said Jose Ocando, foreclosure prevention adviser at Chattanooga Neighborhood Enterprise.

Yet despite the ongoing recovery, job loss has remained a reality for employees of Alstom, Mayfield, Volkswagen, Olan Mills and others who have made cutbacks recently. Those who are self-employed and retirees on fixed income have also flocked to the program, Ocando said.

"Even though the national trend has been a decrease in foreclosures, in our area it continues to stay strong," he said. "In the past six months, we've seen more people attending a class than all months previous."

As of July, the state has allocated $116 million to help 4,123 borrowers stay in their home, said Patricia Smith, a spokeswoman for the Tennessee Housing Development Agency. Calling the program "on target," Smith said the program has a 96 percent success rate at keeping homeowners in their houses, even after the flow of taxpayer funds -- capped at $40,000 or three years of assistance in Tennessee -- is cut off.

The state is also upping its marketing effort, reaching out to churches across Tennessee in hopes that ministers will share the message with their congregations.

"It's good for them, and it's good for their community," Smith said.

Foreclosures, as a rule, are almost always bad for a community, according to statistics provided by CNE, which distributes the federal funds in Chattanooga.

Home values fall by an average of $75,000 every time there's a foreclosure. Lenders lose about $50,000 from the lost loan, as well as lost interest expense. Local government loses an average of $19,000 in lost tax money, and the homeowner loses an average of $7,000.

"Every foreclosure represents $151,000 of negative impact," said Ocando. "Foreclosures don't just impact the individual, it's a whole-community thing."

The Garth family

It can also be a whole-family thing.

When Johnny Garth was laid off in March 2011 from his job at Pye Acura, he knew right away he was in trouble.

Garth and his wife had to come up with $1,640 per month to stay in their Chattanooga home, which they could no longer afford. But the mortgage company refused to help them unless they were delinquent on a few payments, he said.

Garth had spent much of his nest egg trying to put his kids through college, but he wasn't about to purposefully make late payments.

"We worked too hard for too many years to get our credit and our mortgage," Garth said. "We hadn't been late in over four years, so that was just not an option."

A friend told Garth to go see CNE, which has helped more than 500 Scenic City homeowners avoid foreclosure since 2011.

He was able to get his job back at Pye Acura, but the car business still wasn't paying all the bills. In August 2012, an adviser from CNE called him to tell him that he had qualified for assistance.

After a lot of negotiation and even more paperwork, his mortgage payments dropped to $873 per month, and the remainder of what he owed fell to $71,000 from $176,000, he said.

"When they told me that, I started crying right there," Garth said. "I was in a meeting with my manager, and I started bawling right there. He was looking at me like, 'what in the world,' like somebody had died."

Three of his five adult children now live in the house, working and helping with bills so that the family can keep its home. Though the entire family is busy working or going to school, they still make time every Sunday to sit down around the dinner table and break bread together.

"Everybody is pitching in for us to maintain what we've got," Garth said. "We're all working together so we won't have any problems."

Contact staff writer Ellis Smith at or 423-757-6315.