Foreclosures illustrate mortgage meltdown

None of the half-dozen bargain-hunters knew for sure how many homes would be auctioned off on the steps of Chesterfield County Courthouse last week.

Of the nine that were advertised, only one went to bid -- and it went back to the bank.

The brief proceeding on an overcast late-winter afternoon was a microcosm of the current state of the nation's housing crisis.

It reflected the dying hopes of one family, the Bangs, who were never told of their home's reprieve at the auction. Still facing big bills with little work available, they continued to move out of their home of eight years to a small apartment.

The auction Thursday was shortened by the bankruptcy of two homeowners and a third's ability to lower his interest rate on mortgages that exceeded the value of his home by about $160,000, a deal he arranged despite two previous bankruptcies.

The pathway to the auction involved familiar names. Washington Mutual, the easy-money West Coast savings bank that collapsed last year, was one lender. An arm of the failed securities firm Lehman Brothers was another -- it lent one Matoaca homeowner $82,000 more than his home was worth at the time. Though the home's assessment is up since then, the mortgage is still $55,000 underwater.

There were unfamiliar names, too: Mortgage Pass Through Certificates M Series 2006 HE2, the kind of mortgage-backed security that still poisons many banks' balance sheets. The certificates bundled hundreds of mortgages, the monthly payments on which were to flow through to investors, mainly banks. Among those mortgages was one to a Chesterfield truck driver, now in his third bankruptcy.

The nine foreclosure cases advertised for auction in Chesterfield on Thursday illustrate the mortgage meltdown and how homeowners, banks and the economy at large got to where we are now.

"This is happening a lot these days," said Christine Maggard, vice president of Professional Foreclosure Corp., noting her manila folder of foreclosure paperwork that had a dozen lined-through last-minute postponements for the several auctions she was conducting around the area that day.

"Sometimes it's bankruptcies; sometimes bankers are still trying to work something out," she said. "Everybody is trying to figure out what the new [mortgage assistance] programs are supposed to do."

They aren't the only ones.

No one had bothered to tell a defeated-looking Tae Sik Bang that he didn't actually lose his home at the foreclosure auction. When notified of the development at his home off Huguenot Road, he just kept packing.

"My son, he's 9, I show him the apartment" that the family is moving to, Bang said. "He doesn't like it. He says, 'Why do we have to move?' I say: 'No job.'"

Bang installs siding. There has been little work lately. When he recently returned from a job in Washington, he turned the $150 he earned right over to his wife.

Bang has a $32,745 federal tax lien hanging over him, says he has missed four or five months of payments on his house and doesn't know what to do other than let the bank take it.

Now, he's resigned to losing a house worth $262,400 because he can't make payments on a $159,000 loan that he and his wife, Chin Do Kim, have been making payments on since 2001.

In the Salisbury area, mortgage adviser Benjamin A. Borden III was able to avoid losing his five-bedroom, 2½-bath home by arranging a lower interest rate for his $580,000 first mortgage and his $72,000 second mortgage. The house is assessed at $493,800.

He said his second bankruptcy, in 2003, wasn't a problem when it came to getting a lower rate for a mortgage he was behind on.

"That was a long time ago," he said.

He blamed a divorce for the financial strains that risked his home. His firm uses the words "mortgage bankers" in its name, though neither he nor it are licensed as mortgage bankers or brokers in Virginia, according to the State Corporation Commission.

In a neighborhood of ranchers and trilevels just north of Pocahontas State Park, a truck driver who is struggling though his third bankruptcy got a contract to sell his house just days before the foreclosure auction. Court papers filed four days before the auction date say he wants to sell the house for $167,000, while he owes $189,000 on one mortgage and nearly $47,000 on a second.

Bankruptcy often delays foreclosure, Maggard said. Even in the simplest bankruptcies, sharp-eyed trustees and federal judges watch to make sure debtors are doing their utmost to pay off creditors, and bankers are reluctant to interfere with that with an ill-timed foreclosure.

Last week's schedule in Chesterfield included homes owned by the truck driver and a Brandermill homeowner bankrupt after being hit by more than $37,000 in medical bills.

The Brandermill family moved from the blue, five-bedroom home months ago. A neon yellow notice on the door advises prospective buyers that the water and power are shut off. Bits of wooden porch railing are scattered on the lawn where a recent windstorm left them.

Bankruptcies are on the rise, as the recession bites deeper, with filings in the U.S. Bankruptcy Court in Richmond up 33 percent so far this year, after a 33 percent increase in 2008.

Foreclosures, though, have been growing even faster -- they're running 80 percent above year-ago levels. In February alone, one of every 741 houses in Richmond and its three big suburbs went into foreclosure. Still, that was down about 13 percent from January's rate, according to data collected by RealtyTrac.

Whether the federal government's $75 billion plan to help people stay in their homes or the financial aid it is giving banks will slow that pace is still to be seen. Maggard said the volume of foreclosure paperwork is way up, even if during the last few weeks lenders started delaying or canceling many scheduled foreclosure sales.

Sometimes the answer is refinancing, as one resident of the St. Regents Lake area hopes to do, after his bank agreed to delay this week's scheduled foreclosure to give him more time to negotiate modified terms for his $253,000 mortgage.

Sometimes it is a helping hand. A Baileys Bridge Road area resident who refinanced his $205,000 home to pay for his two children's college costs said he was bailed out by his parents, which kept his home from being sold at foreclosure last week.

"It was hard to do," he said, asking that his name not be used.

For the Bang family, putting away the pink and red bikes the kids left parked by the side of the garage and the toys that used to be scattered on the lawn, it seems impossible. The mail, full of bad news, piles up, but the banker never calls with a way out.

They see no way to avoid leaving the only home their 7-year-old daughter has ever known.

"She is cry[ing] a lot," Chin Do Kim said two days before the foreclosure that didn't happen.

"What are you going to do?"

Contact David Ress at (804) 649-6051 or dress@timesdispatch.com.