Many who have lost their homes got into what's known as negatively amortized or 'neg am' loans. It happens to people whose loan payments are less than their monthly interest.
Delores Buchanan raised nine children with her husband. But now she has an equally herculean challenge: saving her home from foreclosure in San Pablo.
"After working all of those years, I did not want to lose our home," said Buchanan.
Delores acquired a mortgage in 2004 that allowed her to make minimum payments that didn't cover the interest.
Rick Harper is a Vice President of Consumer Credit Counseling Service of San Francisco.
"A lot of people got caught in that trap," said Harper.
It's a trap because the so-called 'pick a pay loan' from then /*World Savings*/ and now /*Wachovia*/ allowed her to make minimum payments every month.
Delores' principal back then was just $262,000. But four years later, it had grown to over $322,000.
She asked Wachovia to modify her loan. That's something more and more banks are doing.
"I think there's a lot more hope today that there was a year ago. And certainly more than five years ago," said Harper.
He says about 70 percent of homeowners recommended by his agency for a loan modification get one. But Delores' request for one was denied.
"I was devastated. I didn't know what to do about that. I was just really devastated," said Buchanan.
Wachovia stopped offering 'pick a pay' loans before /*Wells Fargo*/ bought it last year. But $93 billion worth of such loans remain on the books, and $35 billion of that portfolio are loans held by homeowners it doesn't consider credit worthy.
Delores turned to 7 On Your Side for help.
"I hate to say it, but we probably would have eventually lost our home," said Buchanan.
/*7 On Your Side*/ called Wachovia and it agreed to modify her loan.
It'll be an interest only loan for 10 years. Her monthly mortgage will be only $429 the first five years compared to $1,368 now. She'll be able to pay above the minimum and start paying down the principal.
Her monthly mortgage will increase incrementally until year 11, when it will remain at $1,600 through the end of her 30-year loan.
Wachovia told 7 On Your Side it's pleased it has achieved a positive outcome for the Buchanans. It says it makes every effort to explore possible solutions to help borrowers stay in their homes.
"I couldn't believe it. To me it was a miracle," said Buchanan.
Most banks have stopped offering negative amortized loans. Meanwhile, Wachovia says it's currently working with 22,000 of its 478,000 customers to change their loans.