Bucks couple struggling as debt crisis hits home

Frank Salamone blames himself, mostly, for his small role in the subprime-debt crisis that has helped hobble the global economy.

With his household debt soaring from a $123,000 mortgage in 1990 to a $425,000 mortgage on the same house by 2006, Frank and his wife, Joan, are a striking example of how the housing bubble's easy credit allowed consumers to bury themselves in debt.

Now, they are struggling to avoid the worst consequence of what Frank called "crappy decisions." That would be the loss of their house in Bucks County's Warwick Township. "I'm not an Oprah victim. I don't blame anybody," he said.

Their five refinancings since 1997 ran the gamut of the subprime universe, including piggyback loans, no-doc loans and two-year adjustable-rate loans - sometimes known as exploding ARMs.

Cash from increasingly onerous refinancings went toward home improvements, medical expenses and credit-card debt that ballooned out of control during the 18 months Joan was out of work battling cancer.

In an interview last month, Frank, a quality-assurance manager at an electronics company, said a steady stream of credit-card offers and increased borrowing limits were "ruining this country. Ignorant people like me are what's getting sucked into it."

The Salamones have been two months behind on their $3,148 monthly mortgage payments since Frank - who comes across as a man who can eventually laugh at anything that does not kill him - took a 10 percent pay cut last summer. At that point, all the equity had been taken out of the house and the subprime-lending market had largely shut down.

To catch up, they took a second job in December delivering newspapers from 2:30 to 5:30 a.m. They work together. Frank needs Joan, who sat quietly during an interview paging through a training manual, as the navigator.

Income from the paper route has made the monthly payments on their mortgages more manageable. Those payments had represented 55 percent of their gross income; now they consume 38 percent, Frank said. But the Salamones, who have two daughters, still owe more than $50,000 on credit cards, plus medical bills.

Unlike hundreds of thousands of other borrowers with a crushing debt load, the Salamones have managed to avertforeclosure, which usually starts when payments fall 90 days behind.

Experts expect foreclosures to soar this year, increasing pressure on the housing market, whose troubles have been a major factor dragging down U.S. economic growth.

SMR Research Corp. in Hackettstown, N.J., predicted that 5,800 houses in the Philadelphia region would be lost to foreclosure this year, up from 2,300 last year. Many more debtors will enter the foreclosure process but not proceed all the way to a sheriff's sale.

The federal government is trying to spur the economy through interest-rate cuts and tax rebates, but those efforts are running up against families such as the Salamones, who are slashing spending because their borrowing binge is over.

The Salamones changed car insurance, even though that meant taking business from a family friend. That cut their monthly bill to $130 from $180. They switched from Comcast Triple Play for $160 a month to Verizon FiOS for $110.

They've cut their grocery bill about $75 a week; fish sticks were on the menu one Sunday night last month. "We just deal with it," Frank, who still smokes a pack of cigarettes a day, said during an interview in their living room, which they painted blue and rag-rolled to give the walls texture.

They still do what they can for their children. For example, in November they started paying $25 every other week for their 12-year-old daughter's voice lessons.

Their house needed a long list of repairs when they moved there in 1990, Frank said. They pulled out the refrigerator and found a hole in the floor; the roof leaked, and the septic system was failing.

At first they tried to pay for repairs out of pocket, but then Frank got a real estate license in the mid-1990s. "I discovered the wonderful world of refinancing," he said.

Cash from the first three refinancings - $160,000 in 1997, $230,000 in 2000 and $360,000 in 2003 - went mostly into home improvements including kitchen repairs, a new roof, a new furnace, vinyl siding, new windows, a new outside staircase, an upstairs addition, and hardwood floors for the living room.

The size of the Salamones' refinancings outpaced the growth in average house prices in Warwick Township.

The median sale price there - meaning half the homes in the township sold for more and half sold for less - climbed from $168,650 in 1997 to $375,000 in 2006. That's a 122 percent gain, compared with a 165 percent gain for the amount lent against the Salamones' house.

Trouble started after the 2003 refinancing, the first involving a so-called piggyback loan. That type of loan, usually for 20 percent of the total house value, was designed for borrowers without enough money for a down payment to buy a house.

"We were doing OK with the refis, but then medical problems hit," Frank said.

Soon after that loan, Joan was diagnosed with cervical cancer and was out of work for 18 months. Insurance would not cover about $10,000 of her medical expenses, Frank said. Then she had a kidney stone.

Without Joan's income, credit-card bills mounted. Frank refinanced into a $320,000 mortgage with an $80,000 piggyback loan to consolidate debt in 2005.

That was his first experience with a so-called no-doc loan, which means that income was not documented. Otherwise, he said he would not have qualified.

Frank took it because he was desperate without his wife's help. "You figure out where my head was at that point," he said. "It was basically how do I keep things running."

The idea was that he eventually could refinance out of the $80,000 loan, which had a fixed rate of 9 percent. He soon could not afford the $2,800 in payments on those loans. When he called the Arizona-based lender back, the broker who had promised him help was gone.

Meanwhile, "I was getting literally three dozen calls a week" from brokers and lenders offering new deals.

The latest refinancing, for $425,000, occurred in August 2006 through Mortgage Lenders Network, which went bankrupt six months later.

That loan was not big enough to pay all the credit cards and Frank's car loan, as they had hoped. Despite all the refinancings, the Salamones still have $53,000 in credit-card debt, including $30,000 on accounts at American Express.

Help with the mortgage might be coming. A Philadelphia lawyer, Robert P. Cocco, said he found a violation of the federal Truth in Lending Act in the Salamones' loan documentation and sent a letter this month to the current servicer, Wilshire Credit Corp., demanding that the loan be rescinded. The originator misstated the annual percentage rate as 10.3 percent rather than the actual 10.6 percent, according to Cocco.

Adjustable-rate mortgages, Cocco said, "are so complicated and they shoveled them out the door so quickly to investors that it was difficult even for the lenders themselves to accurately calculate and then disclose the costs of the loan."

Meanwhile, the Salamones will keep plugging away - starting each day at 1:30 a.m.

Joan said there is one thing she enjoys about delivering papers in the middle of the night. "It's nice to see the deer outside. It's really pretty," said Joan, who brings carrots and apples to feed them.