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September 18, 2007

Selling out the American Dream: The crisis of American housing ambles into the suburbs

A single mother of three teenage boys, Patti Gravelle nearly lost her Jeffersontown home to foreclosure this year. In 2003, Gravelle refinanced the home she purchased 12 years ago, and in the process changed mortgage companies. And the situation she found herself in shortly thereafter is one affecting millions of Americans right now. Foreclosure is no longer the largely exclusive province of low-income borrowers; the middle class is increasingly the target of home foreclosure, and that national trend is also playing out in Louisville. Over the past two years, the areas feeling the biggest impact from foreclosures have been the “first-tier suburbs” of Pleasure Ridge Park, Shively, Okolona and Gravelle’s neighborhood, Jeffersontown.“It’s happening in places we used to think were invulnerable to this level of mortgage failure,” said Cathy Hinko, executive director of the Metropolitan Housing Coalition. “Maybe you used to think it was about them; now it’s about all of us — it is very much a middle class phenomenon we’re seeing.”The subprime mortgage crisis in the United States is estimated to affect 2.2 million people. One out of five subprime mortgages originated in the past two years has ended in foreclosure. As in Louisville, the problem has seeped into the middle class throughout the nation.The subprime home loan market, which offers high interest loans to people who would not typically qualify for a loan, was a $35 billion industry in 1994; by 2005, that figure was $665 billion. The most common subprime loan offers borrowers an enticingly low interest rate for the first two years, then increases incrementally every six months for the rest of the term of the loan. The interest rate on these loans often increases as much as 5 percent over the term. Homes purchased with subprime loans are 62 to 123 percent more likely to beforeclosed on when compared to homes with prime loans, depending on the year of origination, and subprime loans make up 25 percent of the total home loan market, according to the Center for Responsible Lending. “These aren’t people who are destitute — these are people who are trying to fulfill the American dream and own a home,” said Gwen Horton, an attorney with the Legal Aid office here who specializes in foreclosure. Gravelle was certainly trying to fulfill the American dream. She began getting letters from businesses that wanted to buy her home almost as soon as she received the first foreclosure notice; that struck an emotional chord.“It was really demeaning,” she said. “Of course, the sheriff came to the house to deliver the papers in the police car, and my sons are asking me what is going on. I don’t want to sell my house. It may not seem like much, but it’s my home.”To buy her J-town home, Gravelle took out a loan from BB&T at a fixed and relatively low rate, 7.45 percent. Then she was laid off from her job of nine years. She had to refinance — losing your job automatically hampers your ability to secure regular loans — and took out a subprime loan from Option One.Gravelle said she was late on her April mortgage payment, and in May sent a check for both the previous and current month, including a late fee. However, Option One returned the check on June 20 with a letter saying it could not accept her payment because her home was in foreclosure.Thus ensued a runaround that lasted till about a week ago. It had Gravelle in emotional and financial turmoil, and facing the reality that she and her sons might be put out in the street.When she learned her home was in foreclosure, Gravelle immediately called Option One to find out how to resolve the matter. On July 2, she received a letter informing her the loan reinstatement fee would be $6,579.28, which included four monthly payments, attorney’s fees totaling $1,902, late fees and a property inspection fee. On July 9, Gravelle hired an attorney, who sent a letter to Option One seeking to resolve the matter and lower the cost of reinstatement.The mortgage company did not respond, so on July 20, Gravelle’s attorney sent another letter seeking resolution. Three days later, Gravelle received a letter directly from Option One listing the new reinstatement fee as $8,715.36, including $3,000 in attorney’s fees. Her attorney, meanwhile, got a letter from the mortgage company’s attorneys that included a different reinstatement amount — $7,778.44 — and a lower attorney fee than listed in the letter Gravelle received. On Aug. 1, after negotiating the reinstatement fee, Gravelle sent a cashier’s check, which she knew Option One required, to their attorneys in Cincinnati, totaling $7,778.44. She tracked the check and called the attorneys to confirm receipt; it arrived on Aug. 2. Somehow, though, the matter was far from over.Option One sent another letter to Gravelle the following week, which included a returned check in the same amount, but not the cashier’s check she sent — a standard check from U.S. Bank. Near tears, she called Option One. The customer service representatives said she owed $8,775.36, and that it had to be paid with a cashier’s check. Gravelle then sent a mass e-mail — to her attorney, Option One’s attorneys, Hinko at MHC and everyone who had been involved, laying out the situation and asking for help.Shortly after, the Option One attorneys called to say it was the company’s mistake. So she sent yet another cashier’s check and crossed her fingers that she had saved her home. During the last week of August, she went online to pay her September mortgage payment and learned that her home was still marked for foreclosure. She called Option One and company representatives informed her that, yes, her home was in the process of foreclosure and they couldn’t accept her payment. Gravelle explained that she had resolved the issue. After being put on hold, the customer service representative came back and apologized, saying that, no, it was not under foreclosure after all, but simply that the system takes 30 days to update. Option One did not return phone calls seeking comment for this story.While Gravelle’s saga may seem outrageous, rare it is not.“Her story is typical of what’s going on,” Hinko said. “She is someone who tried to do the right thing, and even with all her attempts the system is set up for her to fail. The industry itself is setting itself up for failure.”In 1996, Jefferson County had 437 foreclosures with an order to sell. By 2006, that number climbed to 2,710, “a staggering increase,” Hinko said. And Kentucky is way behind other states, she said. Nationally and in many state governments, attention is being paid to both reform and prevention, but in Kentucky the efforts are being led not by the state but by Neighborworks, an organization of the federal government.“It’s a sad commentary that we have to wait for a national response even though we’re having such a terrible problem in our state,” Hinko said.Louisville is taking steps to intervene in the current crisis — Metro government has set aside $375,000 for foreclosure intervention programs. But the money is coming out of the emergency assistance fund, which is obviously there for all brands of crises, not just foreclosure.Considering Gravelle’s situation and that of so many others, this national “crisis” appears unlikely to fix itself. The mortgage industry will have to actively seek a resolution so millions of Americans don’t suddenly find themselves homeless.“I know I was at fault, but I tried to pay,” Gravelle said. “I’m a single mom with three teenage sons; my ex-husband lost his job and couldn’t pay child support. It was a nightmare. Now I make sure I get it in before the first because I don’t even want to have to talk to them again.” Contact the writer at citystrobe@leoweekly.com