Myrdine Joseph thought she had found a way to save her Brockton home from foreclosure by selling it to a nonprofit lender for less than what she owed on the mortgage. The nonprofit, Boston Community Capital, would then sell the three-bedroom ranch back to Joseph at its current market value — low enough for her to make the loan payments.
But the transaction required the approval of Joseph’s current mortgage holder, Wells Fargo Co., and earlier this year it rejected the deal.
‘‘I was devastated,’’ said Joseph, 41, a nurse. ‘‘I want to pay. Just give me something that is affordable.’’
Boston Community Capital, which has engineered similar buybacks for about 150 struggling Massachusetts homeowners over the past two years through its Stabilizing Urban Neighborhoods program, was not surprised by the veto. The organization said it is increasingly facing resistance from lenders who worry that providing a way for homeowners to cut their debt will motivate others who owe more than their properties are worth to stop paying mortgages.
The conflict highlights a nationwide debate over how to solve the foreclosure crisis.
While banks are wary of reducing mortgages, housing advocates argue it’s key to stemming the foreclosure crisis. Some call banks’ opposition to more affordable loans hypocritical — they note that many of the institutions now assuming a moral high ground when it comes to helping homeowners are the same banks whose reckless lending practices forced taxpayer-funded bailouts.
Elyse Cherry, chief executive of Boston Community Capital, said lenders’ objections to Stabilizing Urban Neighborhoods is just bad business.
‘‘It makes no economic sense whatsoever,’’ Cherry said. ‘‘There is no evidence that people walk away [from their mortgages] when their neighbors are walking away.’’
Cherry said more than a dozen of Boston Community Capital’s property deals in Massachusetts have been stymied by lenders, including Wells Fargo, Freddie Mac, and JPMorgan Chase Co.
Wells Fargo said it is working with Joseph to help her avoid foreclosure, but is not ‘‘actively participating in any efforts designed to transfer properties back to their original owners at a reduced price.’’
Joseph had attempted to sell her home in a so-called short sale, in which the homeowner sells the property for less than the value of the mortgage, with cooperation from the lender. In turning down the arrangement, Wells Fargo notified Joseph that the sale was not at ‘‘arms length’’ — a requirement that buyers and sellers are independent from each other to prevent fraud.
For the same reason, the Department of Housing and Urban Development — an investor and insurer of Joseph’s loan with Wells Fargo — prohibits short sales that result in a property ending up with the original owner.
Mortgage giant Freddie Mac also generally opposes initiatives that reduce a homeowner’s principal, out of concern that others would seek the same kind of help, said spokesman Brad German. But the lender would not get in the way of such a sale after aproperty has gone through foreclosure, German said.
‘‘If you inspire people to not pay a mortgage they can afford to pay and go into default, then that is going to increase our losses,’’ he said.
The nation’s largest bank, however, is giving the Stabilizing Urban Neighborhoods program a chance.
This past summer, Bank of America Corp. began working with the nonprofit to identify 60 at-risk homes in Boston-area neighborhoods that could potentially be saved from foreclosure. Bank of America notified the homeowners they were eligible for assistance through Stabilizing Urban Neighborhoods, and a few owners are repurchasing their properties from Boston Community Capital at reduced prices.
‘‘We see this as a foreclosure prevention activity which actually benefits the bank, the investor, as well as the community,’’ said Rebecca Mairone, national mortgage outreach executive for Bank of America. ‘‘These customers are heading for foreclosure.’’
Cherry said Bank of America’s support is important, but it’s not enough. More lenders need to join the effort, she said, helping working homeowners such as Gregoria Rivera, a 65-year-old grandmother trying to save her Lynn home.
Rivera, a dishwasher at a country club, paid $185,000 for her home in July 2006, before property values tumbled and she lost income. Boston Community Capital attempted to buy it from her in a short sale but Rivera’s lender, JPMorgan Chase Co., backed away from the deal last summer.
JPMorgan Chase declined to comment. But Isaac Simon Hodes, lead organizer for the nonprofit group Lynn United for Change — which worked with Rivera — was disappointed by the rejection. This month, the group protested outside Rivera’s home to fight a scheduled foreclosure auction, which was then postponed. Housing activists have staged similar protests across the state.
Hodes said if the bank is truly concerned about fraud then officials should investigate individual cases rather than implement blanket restrictions on sales that lower homeowners’ debt.
‘‘Chase has a chance to do a very simple thing to mitigate the damage they’ve caused to communities like Lynn across the country,’’ he said. ‘‘In this case, there was nothing fraudulent about it. It was quite upfront. The family can’ t afford the house.’’
Joseph, meanwhile, remains in her vinyl-sided 1950s home unable to tell her five children what will happen next. She first got into financial trouble several years ago when her partner got sick and they subsequently separated. Her home is now worth less than half of what she owes the bank. She is saving money each month, hoping to somehow avoid foreclosure.
‘‘It’s very stressful,’’ she said. ‘‘I don’t know what the next day is going to bring.’’
Jenifer B. McKim can be reached at firstname.lastname@example.org.