Homeowners Struggle as Housing Market Slowly Recovers

September 16, 2009— -- When real estate broker Sherri McBroom drove through a Phoenix suburb back in January, it was a tour of despair. There were more than 130 homes for sale in one neighborhood alone.

Today the story is completely different. While nationwide home sales jumped 16.7 percent in the first half of 2009, the turnaround in the same suburb is even more stunning -- 150 homes have been sold since May, thanks to low prices, low interest rates and tax breaks for first-time buyers.

"Prices were so low in the valley, I expected the buyers to come out. I didn't expect there to be a bidding war. I didn't expect there to be 20 offers on every home," McBroom says.

But for many in that neighborhood and around the nation, the rebound in real estate is coming too late, and painful lessons are being learned as the nation struggles to recover.

Back in January, the Hirschi family owed their bank $150,000 more than their Phoenix home was worth, so they hired Choice National Loan Consulting to help modify their mortgage. "We didn't want to be part of the problem," Hirschi said. "We didn't want to just walk away from our house and contribute to the overall housing crisis."

But after paying a $3,500 up-front fee, they say representatives from Choice National rarely returned their calls, failed to alert them of a pending foreclosure, and made repeated efforts to recruit them as sales associates. They also claim that Choice advised them to skip mortgage payments so the bank would consider their modification request more urgently. The bank repossessed the home in August and Betty Hirschi says "I honestly wish I'd handled it myself."

Failure to respond to a number of outstanding complaints has earned Choice National an "F" from the Arizona Better Business Bureau. When contacted by ABC News, Choice National President Jordan Ruzicka blamed the allegations on prior management and vowed to refund the Hirschi's money. "We are not a foreclosure prevention service in any way, shape or form," Ruzicka said. "We never urge our clients not to make payments."

The Hirschis are just one example of the perils in this new -- and largely unregulated -- mortgage modification boom. It arose after the Obama administration launched a $75 billion "Making Home Affordable Plan," designed to get lenders to reduce monthly payments for struggling homeowners.

In Miami, Fla., last January, Rosie Alvarez was laid-off, desperate, and pinning much of her hope to that plan. "I'm hoping that this program will actually work -- not only for me but for a lot of other people out there," she said.

Seven months later, Alvarez has a new job and is scrambling to catch up on payments while still trying working out a deal with the bank.

"It hasn't been easy, but we're trying," Alvarez said.

So far only 9 percent of eligible homeowners have seen their payments lowered, and Alvarez's foreclosure attorney Jorge Gavaria blames the slow progress on huge demand and overwhelmed banks.

"We have seen a tsunami of loan applications being submitted to the banks. The banks do not have the personnel to deal with this problem," Gavaria said. "My advice to the consumer is be patient, submit all of the documents, and continue to call the lenders…if you insist you might get the results."

Gavaria says banks are often unwilling or unable to modify because they bundled most mortgages into Wall Street securities, and the investors who bought them are unwilling to take a loss. "The lender at this point is really a conduit between the actual owner of the mortgage and the homeowner," Gavaria said.

On New York's Long Island, David and Susan Stempel are proof that things can get better.

When ABC News spoke to them last October, they had found a buyer for their home and bought another house closer to their children. But then the economy crashed, the buyer backed out and they were forced to carry two homes for 15 months. After lowering the price four times, by $60,000, they finally found a buyer and some peace of mind.

"You know you can sleep at night, that's the big thing," Susan Stempel said.

The Stempel's say their nest egg is smaller, but they're more grateful and wiser than ever -- several of their friends are still stuck, unable to sell their homes.

If the sales trends continue and banks can keep up, more Americans will soon taste the same weary relief.