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Michelle had lived in her southeast Wichita home for 15 years, but when she emerged from a bankruptcy in January, her bank informed her that she had missed $9,000 in house payments in recent years.
Michelle, who didn't want her last name used, was terrified she would lose her home.
She considered going back to bankruptcy, but the prospect upset her. Her bank told her there might be another way: the federal government's Making Home Affordable program.
"It's where my kids grew up and where I have a room for my grandkids," she said. "I don't know why I fought and struggled so hard to keep it, but I didn't have anywhere else to go.... It's home."
Making Home Affordable pushes the nation's largest lenders and loan servicers to lower interest rates for existing or refinanced mortgages.
Few local banks are involved in the program — typically, because they no longer own or service the mortgages they originated — but many in Wichita's banking and real estate industries are following the effort to cushion the shock of foreclosures on the local housing market.
As of October, about 2,000 households in Kansas and 650,000 nationwide enrolled in the program on a trial basis.
Only about 1,400 nationwide had made it to permanent status, as of September, but the government is accelerating that, announcing plans convert 375,000 homes into permanent status by the end of the year.
The mortgage banking industry added that it also has modified nearly 1 million mortgages in 2009.
Even so, the number of foreclosures continues to rise here and in the nation.
In Sedgwick County, there were 2,823 foreclosures scheduled through November, up 46 percent from the first 11 months in 2008.
And nationally, the industry said that 2.4 million homes entered foreclosure during 2009 and 782,000 of those homes were sold off through foreclosure. Those don't include homes sold in distressed sales such as short sales or when deeds are just handed back to the bank.
The program has garnered plenty of criticism over the past six months for not doing enough to halt the foreclosure epidemic.
The program is inherently limited. It is voluntary for the banks and helps only the moderately troubled, particularly those with subprime loans. It is best suited for those who are working but whose payments are just too high for their income.
Those who are truly desperate, such as those who are laid off and have no savings, do not qualify.
The program
Making Home Affordable has two pieces: lowering interest rates on an existing mortgages and refinancing with a new mortgage.
A key point is that the program does not lower the principal, only the interest rate.
Here are some guidelines on who may be eligible:
* The loan is owned or guaranteed by Fannie Mae or Freddie Mac. Links to check on this can be found at http://tinyurl.com/yhfkjrv.
* Not more than 30 days late on a mortgage payment in the past 12 months.
* The amount owed on the first mortgage does not exceed 125 percent of the property's current market value.
* A reasonable ability to pay the new mortgage.
* The refinance improves the long-term affordability or stability of the loan.
On the Web site, www.makinghomeaffordable.gov, there are estimators to gauge the benefit.
Applicants need to bring, at a minimum, proof of income, two years of tax returns, and information on other debt, including credit cards, although many applicants have complained of lengthy and often frustrating demands for more information.
Banks are also modifying loans outside of the government program. Capitol Federal Savings, one of the few banks to hold onto its loans, said it has modified some mortgages.
"We've had some requests for an abatement," said Jack Huey, the bank's chief lending officer, "but there has to be some possibility of repayment. We don't mind helping out,
but if they have no ability to repay, that doesn't help anyone."
Local impact
Wichita doesn't have a bad foreclosure problem, relative to many cities, at this point.
About 1.2 percent of all mortgages in the area are in foreclosure compared with 2.9 percent nationwide.
As the economic downturn grinds on and eats up people's savings, the foreclosure rate could rise.
"The true test will come next year," said John McKenzie, president of Coldwell Banker Plaza Real Estate. "The impact won't be known until we see the amount of those properties entering into our market."
The good news is that Wichita's housing market is healthy and people in trouble have a chance to sell their homes without taking a big loss.
At the moment, McKenzie said, about as many properties are being bought as are being sold.
That could change if foreclosures swell. Home prices will be seriously affected if the area sees nine months of inventory, he said.
At this point, however, there is just a 4.5 months of inventory for existing homes and 6.3 months for new homes, according to the Wichita Area Association of Realtors.
It's hard to know exactly how many local people are in government or industry loan modification programs.
Attorney Frank Ojile, who represents banks and those going through foreclosure, estimates that 20 percent of the homes scheduled for foreclosure get some kind of mortgage modification.
It may be one of the reasons that while the number of houses scheduled for foreclosure rose nearly 50 percent this year, the number actually sold at the sheriff's sale is almost exactly the same.
And, for Michelle, the program has been a godsend.
Her mortgage rate was lowered from 14 percent to 7 percent. Her payments fell by $125 per month.
She still has that room set aside for her grandchildren when they come to visit.
"It unleashed a bunch of knots in my stomach," she said.
