LAWRENCE - Steven Calheta, an auctioneer from Irving Shectman of Pawtucket, R.I., stood outside 26-28 Washington St. on Wednesday, reading from a legal document that announced the foreclosure sale of the house behind him.
The only person to show up was a representative of Wells Fargo Bank, which holds the mortgage. Bank agent Bob Scanlon bid $308,466.24, and the house was sold - back to Wells Fargo.
Calheta and Scanlon got back into their cars and drove away from the empty, two-family home, once occupied by a father and his children as well as a tenant on the second floor.
Across the street, Guadalupe Martinez sat on the front steps of her ranch-style home as her children scampered around, chasing their kitten that had somehow gotten outside.
Four years ago, Martinez, a manager at a local Wendy's, refinanced her $345,000 mortgage with Ameriquest. She got an adjustable-rate loan on her property, which has an attached, three-unit apartment building. Her monthly payments started out at $1,900 a month and most of that was covered by the $1,700 monthly rent she got from her tenants.
Then reality struck - and the rates started to rise. Two years ago, her monthly mortgage payment began going up in $300 increments. Her most recent bill was for $3,300 a month.
"There's no way I'm going to make that payment," said Martinez.
All over Lawrence, the Merrimack Valley, the North Shore and the rest of the country, homeowners are getting caught in the adjustable-rate mortgage bind. In many cases, they lose their homes to the mortgage companies that once so freely loaned them money with the lure of low initial interest rates that would start rising after a couple of years.
In some cases, people are able to work with their lenders to prevent the loss of their homes, but as credit tightens up, that option is disappearing for many borrowers. For some, the best option is just to turn the keys over the bank and walk away from the house.
That may be the best option for Martinez, a single mother from Mexico who has three children of her own and cares for a fourth. Her job pays $22,000 a year, and she can't find tenants for two of her apartments. Meanwhile, she said, she gets no child-support payments from the father of her children, and her partner is unable to help out, either.
"I talked to Ameriquest, but they're so mean. They have no interest in helping people," she said.
"Maybe next month, I'll have to move out."
Flurry of foreclosures
Martinez and her former neighbor across the street are just two examples of the problem sweeping the state. The foreclosure rate across the state is skyrocketing. In Essex County alone, the number of properties that face foreclosure auctions rose nearly 200 percent in the first six months of 2007 compared to the first six months of 2006. In that time period, 313 properties were up for auction in 2006. In 2007, the number rose to 920, according to statistics compiled by the Boston-based Warren Group, which publishes Banker & Tradesman among other financial publications.
But there is hope for some people facing foreclosure, according to local banking and housing experts.
Of the 920 homes facing foreclosure in the first six months of 2007, only 397 were actually sold at a streetside auction.
The reason is that the owners of some of those homes were able to work out other arrangements before the auctioneer showed up.
"We are seeing a range of things happening," said Andrea Ryan, the housing manager in the Lawrence Community Development Department. "Some are able to stop the process - they have gone to Division of Banks and filed forms that they are victims of predatory lending."
Those forms kick off a process that delays the sale of the property until an investigation is completed.
Other people do a short sale - working with the bank to sell the property through a Realtor for less than it's worth but enough to pay off the mortgage.
"They say, 'Get rid of it for me so I can get out,'" Ryan said.
Still others do work-outs - that is, they negotiate with a lender for different mortgage terms. And still others refinance their mortgage, get money from a relative, or find a tenant to help make their payments.
"Who knows what," she said. "It's all over the map."
Alan Pasnick, an analyst with the Warren Group, agreed.
"Foreclosures get resolved in lots of ways," he said. Another option, he said, is to do what's known as a "deed-in-lieu-of-foreclosure," in which the owner hands the deed of his or her house over to the mortgage company or the bank, which then takes ownership and sells it.
"The bank will say, 'Instead of having this thing drag on, turn the title over to me. We'll do a private sale, we'll forgive your debt, forget all the foreclosure fees.' So you turn it over, and it's done," Pasnick explained.
But those and other options may soon be drying up, said Terry Egan, editor in chief of publications at the Warren Group.
"A lot of borrowers ended up in mortgage products, like adjustable rates, that reset after two years and go higher," he said.
As long as real estate prices kept going up and up, they were OK, he said, because they could always refinance.
Lately, however, home prices have leveled out and in many communities started falling.
"That's what's changed," he said. "That wiggle room - the escape hatch - is closing. If you face a high reset on your loan, and your home is worth less than what you bought it for, there are not a lot of ways out."
Meanwhile, more than 115 mortgage companies nationwide have either gone bankrupt or stopped selling mortgages, leading to a credit crunch.
"Credit standards are tightening," Egan said, "so people who took out subprime loans no longer have the option to refinance."
Charlie Duerr, whose territory as a sales manager for retail mortgages for Sovereign Bank includes the Merrimack Valley, said things are probably going to get worse before they get better - and the pain is going to spread.
Currently, many homeowners in Lawrence and other big cities, like Lowell and Haverhill, are suffering the brunt of the foreclosure auctions in the state.
But Credit Suisse, a global financial firm, filed a report recently that this October, $50 billlion worth of mortgages will reset at higher rates. Over the upcoming year, $1 trillion in adjustable rate mortgages will reset.
That will likely affect communities like Andover, North Andover and even Wellesely, Winchester and Weston.
"It didn't affect them before," Duerr said. "It will start affecting them now ... because these boutique mortgages were offered across the country."
Nonetheless, Duerr, who is a member of the Lawrence Housing Partnership, is optimistic about the prospects for most people struggling to make their payments or buy a new home.
"There are a lot of options," he said. He urged people to work with the Lawrence Housing Partnership, which is made up of housing advocates as well as banks like Citizens, Bank of America, Metro Credit Union and Sovereign, among others.
He said Sovereign, for example, offers buyers mortgages that call for just 3 percent down, with half required from the borrower but the other half a gift or a grant, fixed rates at 30 years with zero points.
The caveat, however, is that "you have to take a first-time homebuyer's class."
Later this month, the Housing Partnership is holding its second Mortgage Check-Up Clinic, during which lenders like Duerr "will help local homeowners better understand their mortgage options and provide advice on how to keep their mortgages healthy to avoid common financial pitfalls that can lead to foreclosure," according to a press release issued by the group.
Thirty people attended the first such clinic, said Andrea Ryan, who in addition to her job as housing manager in Lawrence is also heading up the partnership. She said the group deemed it a great success and hopes for an even bigger turnout on Aug. 29.
Val Divito of Metro Credit Union urges homeowners to attend the clinic to have their mortgages reviewed.
"Homeowners are not aware that they may have a high-risk, adjustable-rate mortgage with increase in the payments in the near future," he said.
Every day is a clinic in the offices of the Neighborhood Assistance Corporation of America, located on Route 28 in Lawrence.
Distressed or would-be homeowners have been streaming into the offices lately to speak with the director, Nelida Machicote, hoping to get a refinancing package.
"It's gotten horrible, horrible, horrible," said Machicote, who's been working with the non-profit lender for about six months in Lawrence.
"You can see the devastation. People come in crying," she said. "It's helpless."
Machicote said she works hard to try to help people, but "you can only help some."
Under NACA guidelines, people must meet certain income-to-debt ratios, and show that they've at least tried to make their mortgage payments.
If they can't meet those guidelines and Machicote runs out of alternatives to help the homeowner, she counsels the person that "it may be a blessing in disguise" that they are losing their home.
"Their house may be worth $300,000 today, but homes around theirs are selling for $200,000 or $150,000," she said. "The value is going down."
She said in many cases, the best option may be just to walk away from the property.
Raul Ortega, a Realtor with Coco, Early and Associates, said many people these days are suffering from reverse sticker shock.
"People call and want to know the value of their property," he said. "Many are shocked when told that properties similar to theirs are selling for less. The market has changed - prices are being adjusted accordingly based on the sales. "
Ortega said his organization does encourage people to try to save their property and not list it right away, because they will have to rent.
But for some of the people, he said, "the stress and worry is just not something they are willing to put up with. They just want to get out of it. They don't have the means to keep up the property. Plus, rents are more modest by comparison."
For Martinez, who may lose her home on Washington Street in Lawrence, that may be the best choice.
"I've still got my job," she said. "I can go rent somewhere."
Still, she said, "After four or five years here, I'll lose everything."