If Foreclosure Looms, It's Sometimes Better Underwater

There’s federal assistance available for homeowners who are "underwater" — people who owe more than their houses are now worth.

But those who are struggling, but not underwater, are finding it increasingly difficult to get any help.

Heather Blanchette has lived on the same street, Watertown's Berkeley Street, since 1966. In 1991, Blanchette bought her single-family row house, two doors down from her parents' house. Everything was fine until she caught a rare virus that left her disabled.

Blanchette kept up her mortgage payments as long as she could, but missed her third payment a year ago.  The bank moved to foreclose. Blanchette applied for a modification of her mortgage, but is still waiting for the bank to tell her what it's willing to do.

“I feel like I'm on death row. I'm waiting for that ‘no’ to come."

Heather Blanchette

“I feel like I'm on death row. I'm waiting for that ‘no’ to come,” Blanchette said, “because I know they're going to say I don't qualify because I have too much equity in my house."

Blanchette’s home is worth $350,000, according to Zillow.com. Blanchette owes $80,000. She was told that she met all the requirements for a modification — except that she did not pass something called the "net present value test." That determines the cash flows the lender will get from modifying the loan, compared to foreclosing on the loan.

"They make more money if they foreclose on me than if they provide me with the modification,” Blanchette said.

Stephen Freeman manages foreclosure programs for the Metropolitan Boston Housing Partnership, and is trying to help Blanchette. He agrees that her home probably has too much equity for the banks to give her a loan modification.

“Equity is the basis for the denial of the net present value test. So outside of that, we cannot say that there are other factors that are affecting the denial,” Freeman said.

The partnership is working with 20 homeowners with problems similar to Blanchette’s.  They are in communities like Watertown, Belmont, Newton, Somerville, Arlington, Wilmington and Lexington, where homes have maintained their value.

Eloise Lawrence, a consumer services attorney with Greater Boston Legal Services, is also seeing situations like Blanchette's. In these cases, she said, banks simply won't agree to modify mortgages.

"They will basically say, ‘You have too much equity in your home.’"

Eloise Lawrence, Greater Boston Legal Services

“They will basically say, ‘You have too much equity in your home.’ Their response when you follow up on that is, 'Well, they could theoretically refinance,' " Lawrence said.

Freddie Mac owns Blanchette's mortgage. It won’t comment on individual cases, but the company's vice president of loss mitigration, Yvette Gilmore, denies that it sometimes prefers foreclosure.

“The goal at Freddie Mac is always to insure home ownership for our borrowers. With the influx of foreclosed properties for borrowers who are unable to maintain mortgage payments due to circumstances that are largely beyond their control, Freddie Mac is never looking to make money off of selling properties," Gilmore said. "We are looking in all cases to insure the borrowers who can stay in the homes do so.”

Blanchette is trying to find an alternative to selling her home.

“It's the only thing I have to give to my only child. I'm safe there. I'm at home. My neighbors are like family to me, “ Blanchette said.

But she may be forced to go. The bank has scheduled a foreclosure auction at the end of the month.