Fighting for Their Homes

In July 2007, Eddie Ortega, an Air Force firefighter with 10 years of military service, purchased his first home in Dover, Del., for $175,000. Two years later he has received transfer orders to an air base in San Angelo, Texas, forcing him to short-sell his home for $162,900, a 7 percent loss. The sale is still pending, and Ortega is waiting to find out if Bank of America will approve the deal before he moves to Texas at the end of July. (In a short sale, a lender allows the homeowner to sell the property at a price that's less than what the owner still owes, and the rest of the debt is generally forgiven.)

"It's starting to hit me now that I'm in a bind if the short sale isn't approved," Ortega says. "I can't pay my mortgage and also pay my rent in Texas. I don't want the stress of a foreclosure to ruin my credit. I'm scared to think about buying a house again."

Ortega's predicament is similar to military homeowners throughout the country who bought property when the real-estate market was booming and now must sell when prices and sales are still teetering at historic lows. Unlike some homeowners who can delay a sale until real-estate conditions improve, military owners who have received transfer orders have limited options in today's market. Many take a loss or try renting until their house or condo eventually sells. Some consider retirement so the family doesn't have to relocate. Others are carrying two mortgages at once or paying off an old mortgage while renting in a new town.

President Obama's stimulus promised help. In February, Congress approved $555 million in funds as part of the package to the Department of Defense as a temporary measure to expand its already existing but limited Army Corps of Engineers Housing Assistance Program (HAP). Some of that money is slated to reimburse military and DoD civilians who have suffered financial losses while selling their homes during the downturn.

But since the initial announcement, homeowners and real-estate brokers say that it's been difficult to get information about the program and exactly who qualifies and under what circumstances. To date, none of the additional funds have been given out. The HAP Web site says no guidelines will be published and no applications processed until "government rule-making requirements" are satisfied. The OMB did not respond to NEWSWEEK's repeated requests for comments and the DoD declined comment.

The new HAP money is supposed to reimburse homeowners for up to 90 percent of the loss from a home sale. One point of contention: while active military members will be covered, it's still unclear if new veterans will also qualify for the program.

A government official with extensive knowledge about the HAP program says he's hopeful that the final plan can be ironed out as early as next week. "I don't like to get ahead of the Office of Management and Budget, but we anticipate getting out the money before the end of the fiscal year [which ends Sept. 30]," says the official, who requested anonymity because he isn't authorized to discuss the HAP funding until it's reviewed by the president's OMB and finalized. "We have a finite amount of money, and we've had to make decisions about how to make it last. The Department of Defense is doing everything it can to help families avoid financial catastrophe and foreclosure."

Phil Dyer, the deputy director for financial education for the Military Officers Association of America (MOAA), a 370,000-member veterans organization in Alexandria, Va., says that the group was originally told that the rules would be completed in April, then May, then June, and then July. "It's closing in on Aug. 1, and the rules still aren't there," he says. "Our members are pretty frustrated by this. They've got to move their families and are financially up against the wall. They're at the mercy of the DoD."

Dyer is telling MOAA members to apply for the financial relief through the HAP program so that they can be approved as soon as the money becomes available. Dyer says he's not sure if the money will be paid on a "first come first served" basis or how the funds will be distributed. "I think it's in flux," he says. "It's a real challenge on how to treat people fairly. $555 million sounds like a lot of money, but I think they've been overwhelmed."

Right now the program is open to military homeowners who purchased their homes before July 1, 2006, and received or will receive transfer orders between Feb. 1, 2006, through Dec. 31, 2009. That leaves Ortega in the lurch since he purchased his home a year too late to qualify for the temporary HAP funding. Asked how the date was determined, the same government official responded, "Some government agency determined that's when the downturn in the housing market began." He added, "Even if someone is not eligible now, that doesn't mean that it couldn't be changed later to make more funding available."

Delaware-based Realtor Theresa Garcia is brokering Ortega's short sale. In the last six months about 60 percent of her clients (most of them military personnel living in the Dover area) have also gone the short-sale route. "It's taking banks longer and longer to get through the short-sale process, sometimes five or six months," she says. "My clients who bought at the height of the market in 2006 and 2007 are now selling at the lowest point."

Statewide sales in Delaware have declined 10 percent in the first quarter of 2009 compared with 2008, according to the National Association of Realtors. Garcia says that home prices had stayed stable in her area, but they've begun to depreciate since earlier this year.

She adds that the military families have been slammed particularly hard and that they're hopeful that the temporary HAP funding can alleviate some of the financial burden. But with little public information about when the money is coming and for whom it will benefit, homeowners are angry about the delay. "Yes, there is a sense of frustration," Garcia says. Ortega is resentful about what he calls "an arbitrary" cutoff date that may benefit some but leaves 2007 buyers seemingly without recourse.

"We understand that there are some people who may question various aspects of the criteria, but we tried to consider every possible issue and made decisions based on the best information available," says the government official.

Those assurances aren't helping Garcia's clients right now. A recent client who got his order of transfer had to pay $10,000 in closing costs to ensure that his house would sell. Garcia says others who can't sell their homes have become long-distance landlords, often paying higher mortgage costs than the rental income they bring in.

That's been the case for naval spouse Melody Cristo. Cristo and her husband, Matthew, a Navy pilot, have been trying to sell their four-bedroom home in Chesapeake, Va., on and off since February 2007. From August 2007 to March 2009 the Cristos were long-distance landlords, charging tenants $1,800 a month while continuing to pay $2,400 on the mortgage.

After purchasing the house for $374,000 in 2005, Matthew was transferred first to Monterey, Calif., and then to Whiting Field in Milton, Fla., where the couple and their 3-year-old daughter are currently renting. In March, the Cristos heard about the HAP money being allocated to military homeowners and applied in anticipation of selling their home at a loss. Melody complains that she hasn't been able to find out any information about when the money will become available. "We haven't heard a peep from them, and time is ticking—people have bills to pay," she says.

The house is currently on the market for $369,000, but Melody admits that may still be too high, even with the $40,000 of home improvements the couple added. "It's pretty bad, we don't have the luxury of staying put unless we break up the family," she says. "I hear time and again everyone is going through the exact same thing. It's stressful; we can't save for college, we can't plan ahead. We have dwindling savings. We're running out of money."