The Gentrys, a family in fight to save home via loan modification © MarketWatch

Extra3/19/2010 10:00 AM ET

One family's desperate fight for its home

The Gentrys sought to avoid foreclosure via a government-backed loan modification. But the company that services their loan has a different priority.  

By MarketWatch

Marianne Gentry, 66, lives with her disabled husband and desperately ill son. And they're about to get kicked out of their home.

Gentry, a customer-service representative for Home Depot, faces foreclosure on the four-bedroom house in Fountain Valley, Calif., her family has occupied since 1996.

Their lender, OneWest Bank, denied the Gentrys' application to have their mortgage altered through the Home Affordable Modification Program, under which the federal government effectively pays banks to help keep people in their homes.

They were originally given until March 9 to clear out, though now a bank executive says the bank is re-evaluating the case and may be able to offer an alternative to foreclosure, such as a short sale or rental arrangement.

If Marianne Gentry's calamitous personal circumstances are unusual, her experience trying to save her home is anything but. Indeed, such stories often have a depressing sameness: bewildered borrowers; a Kafkaesque loan-modification process; indifferent or even hostile lenders.

In 2009, 2.8 million homeowners lost their properties in foreclosure, according to market research company RealtyTrac. Millions more face the same fate this year. Nationwide, one in four borrowers owes more on their home than it's worth, according to the Mortgage Bankers Association.

Part of the blame lies with the federal government's administration of HAMP, which has failed to evolve along with the changing nature of the financial crisis. But most of the problem stems from mortgage lenders and services, which tend to favor foreclosure over other options. In many cases, these companies lose less money by repossessing a home than by easing someone's mortgage payments. That puts servicers and borrowers at odds.

As the crisis unfolds, one thing is consistent: Despite the made-for-TV promises by bank executives and government officials, when it comes to avoiding foreclosure, U.S. homeowners are almost entirely on their own.

The Gentrys have been working with OneWest, formed from the ruins of IndyMac Bank in 2009, for 18 months to find a way to ease their mortgage payments. The family is eager to keep the house, Marianne Gentry said, in part because they've adapted it to meet the needs of her 74-year-old husband, Marvin, who has a degenerative spinal cord injury, and her 42-year-old son, Terry, who suffers from multiple myeloma, a form of cancer that affects the white blood cells.

Unfortunately for the Gentrys, OneWest didn't exactly work with them. In early 2009, the family applied for mortgage relief under HAMP, which the Pasadena, Calif., regional bank participates in. Gentry said she spent months submitting the required paperwork. She checked weekly with OneWest on the status of her modification request and to ensure her file was complete. She also maintained meticulous phone records, keeping notes on her discussions with more than a dozen loan-mitigation employees.

During OneWest's review of her loan, Gentry sought advice from two lawyers and a staffer at the U.S. Department of Housing and Urban Development; all three told her they thought the family qualified for HAMP.

Between her Home Depot salary and husband's benefits, they pull in roughly $4,000 a month before taxes. Cutting their mortgage to $1,800 a month, the level it was at before they refinanced in 2007, would stabilize their financial situation enough to resume making house payments, Gentry said. "It would be tight, but we could make it."

In early February, a OneWest employee told Gentry that the loan remained under review and that she was on track for a mortgage extension. She was shocked to get a recorded message on Feb. 22 saying their house was in foreclosure.

Gentry was distraught. Because of son Terry’s illness, which attacks the bones, he had recently undergone surgery to have titanium rods surgically implanted in his thighs , and he was scheduled to be released that day. "We weren't prepared for the loan modificationnot flying," Marianne Gentry said. "We had three reputable people telling us that we qualify, done deal."

Gentry still doesn't know why OneWest declined to modify their mortgage, saying the company offered no explanation. She also said the bank never informed her that she'd been rejected before scheduling the foreclosure, a violation of HAMP guidelines.

OneWest contends someone from the bank did call to notify Gentry. But OneWest chief operating officer Tony Ebers acknowledged in an interview that there had been a breakdown in communications.

'There's no other way!'

With their modest income, financial hardship and medical circumstances, the Gentrys are exactly the kind of people HAMP is supposed to help. Sure, they made some mistakes, but these were errors of judgment, not greed or fecklessness. Following is how they reached this point.

In 1996, they bought their home for $215,000 with a 30-year fixed-rate mortgage. Terry and Marianne both worked, and her husband, Marvin, now retired from McDonnell Douglas, was an aircraft spray-painter. He collects a small pension and Social Security benefits. Meeting the $1,800 a month mortgage was doable. "Before all of this went down," Marianne Gentry said, "we often used to pay two or three months in advance, and we paid early."

Three years ago, the Gentrys decided to refinance, mostly to get some cash to pay for renovations to their home to make it easier for Marvin, who uses a walker, to get around. According to Marianne Gentry, their mortgage broker for the refi, FirstUnited Bank, recommended the Gentrys get a "pay-option" adjustable-rate mortgage, in which payments periodically increase, through IndyMac. ARMs have proved disastrous during the housing bust, and delinquencies on these loans continue to soar. Because of how they're structured, option ARMs also often don't qualify for loan modification under HAMP.

Gentry said she was nervous about the new loan, but the family felt pressured. "I wasn't going to sign," she said. "I said I wasn't comfortable. One of the loan officers got very aggressive, stood up out of his chair and shouted at me. He said, 'There's no other way!'" Gentry said. FirstUnited also assured them that if necessary they could refinance, she said. So they signed.

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Within six months their monthly payment jumped from $1,800 to $2,400 (and was scheduled to hit $3,000 after two years and $5,000 in five years). After not missing a mortgage payment for over a decade, the Gentrys ran into trouble in November 2008, after Terry was diagnosed with cancer. He had to quit working and could no longer help pay the mortgage. They began falling behind, and with real estate prices plunging, their equity was gone, too.

When their debts grew too heavy, the Gentrys declared Chapter 7 bankruptcy. "Of course I feel bad we weren't able to meet our obligations," Marianne Gentry said. "But we never had a problem until we started having our financial issues."

Continued:  Creditors come before homeowners

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