From: Tam 
Newsgroups: misc.invest.real-estate
Subject: NY Times on foreclosures in the Poconos
Date: Sun, 11 Apr 2004 11:34:35 +0100

Blue Skies and Green Yards, All Lost to Red Ink

By MICHAEL MOSS and ANDREW JACOBS
 
New York Times
Published: April 11, 2004
 

STROUDSBURG, Pa. ‹ Ethel Davis first glimpsed her luminous future in 1997
when she saw a television ad that offered a vision of a green, secure world
that had seemed hopelessly out of reach.

 "Why Rent?" asked the ad for a home builder in the Pocono Mountains of
Pennsylvania. "Our goal is homeownership for you and your family. Every
American wants it; every American deserves it."

 And so, with the ad's irresistible kicker, "The only thing you have to lose
is your landlord," ringing in her ears, she did what thousands of her
neighbors, many of them middle-income blacks and Hispanics from New York
City, did. She took the interstate west, lured by the promise of fresh air,
good schools and green, gated communities they could never afford closer to
home.

 It turned out there was more to lose than a landlord. Six years later,
after her new house proved far beyond her means and the five-hour daily
round trip to her job in New York City sapped her endurance, her marriage
has collapsed, the bank is seizing her house and she is back in Brooklyn
renting space from a landlord who took pity on her.

 "I worked so hard for so long, and I have nothing to show for it," said Ms.
Davis, a 45-year-old legal secretary. "I'm just devastated."

 Ms. Davis's migration west was part of a national campaign that has made
homeowners of millions of middle- and lower-income Americans. But her tumble
from ownership to foreclosure was part of another mass movement.

 In the last decade, lenders have brought foreclosure proceedings against
5,700 homes in Monroe County, Pa., or more than one in five of all mortgaged
homes in this rural county that takes in most of the Poconos.

 Thousands more families here are struggling to hang on. In some of the
fastest-growing Pocono townships, census data show, one in four minority
families are using half or more of their gross earnings to pay for their
homes. They are piling on credit card debt, forfeiting college savings and
plundering retirement funds just to meet their mortgage payments and
unexpectedly high expenses.

 The story of the Pocono Mountains, drawn from corporate and government
documents, and interviews with more than 100 homebuyers and dozens of
finance industry employees and policymakers, is one of miscalculation and
greed, of questionable business practices by builders and banks, of dismal
state regulation and a federal policy whose ambitions outstripped its
ability to be carried out.

President Bush is enthusiastically promoting his role in raising the
homeownership rate, particularly among minorities. Indeed, encouraging
homeownership is one of the few issues the Clinton and Bush administrations
pursued with equal ardor.

 But the national foreclosure rate has tripled over the last three decades.
Experts say mortgage fraud is on the rise in the United States and is now
evident in as much as 25 percent of the loans that falter. And what happened
in the Poconos is a disturbing glimpse of how a worthy goal ‹ helping more
middle-income Americans own their own homes ‹ can sometimes produce
disastrous results.

 Just last month, in a familiar scene here, a former renter from Queens,
Lewis Delgado, gave up a five-year struggle to pay for his home in
Tobyhanna, Pa., by helping his three sons get their belongings into storage
before the sheriff arrived with eviction papers.

 "We're losing everything that we worked for," he said, as he drove off to
look for a new place to live.

 Some tried to avert the calamity here. Finance industry insiders warned
government officials and prestigious institutions like Chase Manhattan and
Freddie Mac that homebuyers were being overcharged and buried in debt,
according to records and interviews. Still, the selling and lending rolled
on.

 Ethel Davis was good for federal officials who boast of their success in
promoting minority ownership. She was good for the home builder and the
banks, which used mortgages like hers to reach a new market for consumer
loans.

 She was good until she collapsed, and then she became an inconvenient
casualty on the bleak side of the housing boom.

Distant Yet Inviting

 There was, to be sure, something quite improbable from the start about
having a home in the Poconos and a job in New York.

 It is, after all, 100 miles from Manhattan to Tobyhanna, which means that
with no traffic the drive would be two hours, and the average rush-hour trip
more like three.

 But, many working-class families asked, what was the alternative?
Westchester, where the median home price is now $564,000? Nassau, where it
is $479,000? Suffolk at $357,000? Bergen County at $392,000?

 The average Monroe County home, by contrast, is going for $148,000, and
unlike the pricey New York suburbs, the Poconos seemed to be courting
minorities from the city. There was even the promise, often repeated, though
a bit vague, that a train was on the way to make the commuting that much
more sensible.

 So the ads beckoning urban residents to the distant exurbs hit a responsive
note for thousands of teachers and bus drivers, paralegals and postal
workers, desperate to have a home, a green yard, to call their own.

 Gilbert Vazquez, a soft-spoken bear of a man, was at work monitoring
traffic reports when the Why Rent ad flashed across his TV screen back in
May 1995. He stifled the urge to let out a whoop.

 The company where he worked, Handicab, which transported people with
physical handicaps, was prospering and so was he in more ways than a growing
paycheck: his wife, Madeline, was pregnant.

 They could not stay in East Harlem. He felt lucky to still be alive. Over
the years he had been grazed by a bullet, tossed into the air by a speeding
gypsy cab and chased by a gang with its pistols blazing. "Out of a group of
40 friends," Mr. Vazquez said, "I'm one of four who is either not dead or in
jail."

 But house shopping proved harder than he had imagined. Prices were climbing
faster than their income, which had just edged past $50,000. Their hunt for
a home in Queens, where the dregs cost more than $200,000, left him thinking
"there was no way; we can't do it."

 So when he saw the ad for the Poconos he phoned Madeline, and they marveled
at what seemed like a stunning turn of fate.

 "To tell you the truth, I didn't think we were ready for a house," Mr.
Vazquez recalled. "But I said, `Let's go check it out and see what kind of
program this is.' "

 In the Bronx, Joane Walton had likewise all but lost hope of getting away
when she saw the Why Rent ads five years later. Their home was a roomy
two-bedroom apartment near Yankee Stadium. But it sat atop a sheet metal
workshop. Used car lots, welding shops and junkyards lined their street.

 Her youngest son had asthma, and she kept all three children ‹ another boy
and a girl ‹ inside their apartment for fear of crime. She had a good job as
a paralegal, and her husband, Edgar Rodriguez, was a school custodian. But
they did have a problem: she still had debt from her college days, which
tarnished her credit profile.

 To her, the Why Rent commercial resonated not just with beautiful houses.
The builder offered a counseling service and savings plan that would let
them clear off her debt and build a down payment.

 "I wanted to be the first in my family to actually own a home," Ms. Walton
said. "I wanted to break the cycle, to show my kids that if you work hard,
there's nothing you can't do."

 Ms. Davis had perhaps the most to lose when she first saw the Why Rent
commercial.

 She had gone through bankruptcy just three years earlier and was still
recovering from the financial ordeal. Her downtown Brooklyn apartment had an
enviable rent of $680, part of the state's Mitchell-Lama housing program,
for which the waiting list is measured in years.

 Still, she and her husband, Wayne Young, an accountant for a grocery chain,
wanted more elbow room and a safer environment for their son, Lasscelles,
then 12. They also saw homeownership as the single greatest route to a sound
financial future.

 "We had a good life and a nice apartment, but what we really wanted was a
house to call our own," she said.

Forces Align for a Boom

 Cheap land and deft marketing have long been Pocono trademarks. By the time
of his death in 1806, Jacob Stroud, who settled the area half a century
earlier, had made an enviable fortune selling off lots around Stroudsburg,
the county seat that bears his name.

 The Poconos eventually became best known for tourism, and Monroe County
promoted itself as a quick weekend retreat and the Honeymoon Capital of the
World.

 But over the years, the Poconos often became known for less wholesome
promotions. In 1973, a land promoter was sued for enticing prospective
homebuyers with "free" vacations to London for which, it turned out, the
takers had to pay most of their own way. Five years later, a former
assistant United States attorney was jailed for promoting a housing
development with false promises about tennis courts, paved roads and a
swimming pool. More recently, a jury in 1993 convicted another developer of
defrauding more than 60 home-seekers, in part by selling lots he did not
own.

 Developers had bet big on selling weekend homes just before the economy
slumped in the early 1990's, and they were left holding whole swaths of land
all paved and piped and ready to go. Then two very different things came to
their rescue. One was the rebounding housing market. The other was the White
House.

 Bill Clinton saw housing as a potentially winning issue early in his 1992
presidential campaign. Soon after the New Hampshire primary, he announced
that he would jump-start the national homeownership rate, which had
languished during the previous 12 years of Republican administrations.

 It was one promise that Mr. Clinton found easy to keep. A surging economy
bumped up the ownership rate with little help from Washington. Then in 1995,
he rolled out a 100-point plan for homeownership. The program sought to
increase the supply of new homes by streamlining local building codes. It
encouraged lenders to make borrowing easier by reducing the traditional down
payment of 20 percent to a few percentage points or in some cases nothing at
all. With help from Congress, the tax law was changed to let first-time
buyers use their retirement funds without penalty. Through promotions like
National Homeownership Day, people who had never thought they could own a
home were encouraged to think they could.

 As a result of policies pursued both by Mr. Clinton and Mr. Bush, the
ownership rate climbed to beyond 68 percent now from 64.1 percent in 1992.
Those four points meant 8 million new homeowners, including 2.5 million
lower-income buyers and 1.2 million each for blacks and Hispanics.

 The makeup of the Poconos and the goals of the federal housing policy were
in perfect alignment. Soon billboards for "award-winning homes" sprung up at
the border of New Jersey and Pennsylvania where Interstate 80 climbs up from
the Delaware River.

 The larger developers also bought airtime in metropolitan New York. The
Keystone Development Company had a lurid commercial that opened with urban
warfare and finished with grazing deer. But none played more artfully to the
aspirations of apartment-bound city dwellers than the "Why Rent"
catchphrase.

The Builder

 In many ways, the man behind the Why Rent ads, Gene P. Percudani, was just
right for the national homeowner campaign. Born in Queens, the son of a
carpenter, he exuded self-made success. He studied architecture at City
College of New York, moved to the Poconos in the mid-1970's and fit right in
with his personable style, confident but not pushy.

 "Is he driven? Most successful businessmen are," said Dario Belardi, a
partner in one development just outside the Poconos and a former executive
with Caesars resorts. "But he's a great family man. A humanitarian. A decent
human being."

 Not all of Mr. Percudani's projects were royal flushes. His venture with
Mr. Belardi, for example, is still struggling to attract buyers.

 He also got in a legal brawl with his main Pocono associate, a colorful
entrepreneur named Gerard Armond Powell whose businesses included selling
vanity toll-free numbers and marketing loans for plastic surgery. After
fighting over a $2 million settlement to dissolve their partnership in 1996,
they took their Virginia operations into bankruptcy.

 But in Monroe County, Mr. Percudani gained a reputation as a prolific
builder. By the mid-1990's, he told prospective buyers that he had built
about 1,000 houses, many of them starter models for first-time homeowners.

 On weekends, prospective buyers at his office in Tannersville, Pa., stepped
into a dreamy whirl of model-home photos and videotaped testimonials from
satisfied buyers.

 "I came away really impressed," Mr. Vazquez said. "I thought this will be
great for kids, but it's not so far that we couldn't catch a show in the
city."

 Ms. Walton fell in love with a gated community called Emerald Lakes, and
put down a $900 deposit before heading back to the Bronx. "I imagined us
getting married again by the lake," she said. "I wanted a place we could
invite all my friends and family."

 Ms. Davis picked out a lakeside lot in another community called Pocono
Country Place. Few of the homebuyers interviewed for this article looked at
other places, met other developers or considered an existing home, prompting
some longtime Poconos residents like Susan McGinty to point a finger: "They
should have known what they were getting into."

 Mr. Belardi said prospective buyers saw homes for $80,000 in the Poconos
and homes 5 or 10 times as expensive closer to home and made bad decisions.

 "The word is greed, and it gets to everybody eventually," he said.

 But homebuyers say there was often pressure to buy now, buy fast, and the
best deals seemed to be always nearly gone. There were free decks and
fireplaces and an advertised monthly mortgage of $685, but in limited
quantities. They were also tempted by numerous extras that ended up raising
home prices beyond what they first thought they would pay. One buyer, David
Johnson, recalls hearing a cellphone exchange that he now suspects was
staged; his sales agent fought with a colleague over whose customer would
get the lot where they stood.

 "It just seemed like such a real good deal," Ms. Davis said. "I mean these
people were willing to build us a brand-new home for not much more than we
were paying in rent for a tiny apartment. Who would walk away from that?"

 It did not take long for many of them to start having second thoughts.
Their lakefront lots would become mysteriously unavailable, forcing them to
settle for lesser spots. Also, Pennsylvania, unlike most states, had no
building code to set standards for critical matters like foundations,
plumbing and insulation; only this year did state officials finish writing
such a code to become law this month.

 At her housewarming party, Ms. Davis's father, a builder from Chicago,
pronounced the house "a rip-off." There was no polyethylene sealant wrap
under the vinyl siding, he told her, and almost no insulation in the walls
or in the attic. "We'd walk around all winter bundled up in sweaters and
coats," she said, shivering at the memory.

 Many other homebuyers interviewed for this article blamed a number of home
builders for problems like foundations that sagged, siding that peeled,
flooded basements, and yards in which all of the soil had been scraped away.
In 1992 the Pennsylvania attorney general, Ernest D. Preate Jr., sued Mr.
Percudani for deceptive practices on behalf of 11 aggrieved homebuyers who
cited similar construction woes. Mr. Percudani settled the suit by making
repairs and returning deposits.

 Mr. Preate is now in private practice and represents Mr. Percudani, who
declined to be interviewed. "Gene built a good house with good value and
tried very hard to help people fulfill an American dream out in the
country," Mr. Preate now says. "If there is a complaint he fixes it."

 However disappointing some houses were, many buyers soon faced far greater
trouble rooted in the relationship that Mr. Percudani formed with one of the
world's most prestigious banks.

 The Borrowing

 Mr. Percudani did more than build houses to further the cause of
homeownership. He lined up the loans that buyers needed to pay for their
homes, and worked with more than 20 lenders including First Union and
SunTrust Banks. But most often, he turned to the mortgage unit of Chase
Manhattan, now known as J.P. Morgan Chase, an executive with his company
said in a deposition.

 The bank had low interest rates and fast service and its status as a
corporate powerhouse had a calming effect on nervous buyers like Mr.
Vazquez. "Whatever little fears I had went out the window," Mr. Vazquez
recalled. "I basically said, `If Chase was involved, I don't have to worry
about this.' "

 Chase was certainly eager for the business. The bank had embarked on a
national expansion into home lending and was sensitive to the
minority-lending goals of regulators who held sway over its growth. In 1996,
it won high praise for joining an inner-city program that counsels
first-time buyers on the pitfalls in homeownership.

 But officials with urban housing groups say that out in the Poconos little
was done to help novice buyers like Mr. Vazquez avoid big mistakes.

 Local lenders who dodged the foreclosure mess say they did so by knowing
the market and players on intimate terms. They also handle the loan work
themselves from the moment homebuyers walk into their banks.

 As a result, two of Monroe County's eight local lenders say they have no
foreclosures at all. Five have averaged three filings a year, county records
show. And the largest, ESSA Bank and Trust, which has made 3,500 loans there
since 1997, says it has foreclosed on 60 homes, well below the national
foreclosure rate. By contrast, 50 of the 377 Pocono homebuyers who used
Chase have lost their homes to foreclosure, and to prevent even more
failures, the bank has taken the extraordinary step of forgiving a total of
$6 million in debt owed by 210 of its homebuyers.

 Some of Chase's loan practices differed markedly from local lenders.

 Chase ran its Pocono venture from a regional office in Independence, Ohio,
whose manager, William K. Spaner, has said in legal proceedings that he
never visited the region or met Mr. Percudani. Chase then farmed out much of
the work that borrowers had expected the bank to perform.

 For starters, Chase paid Mr. Percudani's mortgage concern to be its broker
in the Poconos, which put him in charge of hiring the appraiser who is
supposed to independently assess a home's true value.

 Larger banks commonly assign this task to their mortgage brokers in a
process that in recent years has come under criticism by some experts and
institutions in the industry. More than 7,000 appraisers nationwide have
signed a petition saying they felt pressured to produce inflated evaluations
in part because of who was hiring them.

 But lending experts say that such pressure is even greater in situations
where builders, like Mr. Percudani, create their own loan brokerages, which
they are increasingly doing, with appraisers feeling they must come up with
the price that the builder wants.

 "That's a major, big-time, red flag conflict of interest and a very high
risk loan," said Connie Wilson of AppIntell, a consulting firm that helps
lenders avoid problem loans.

 Banking guidelines do not require lenders to take special precautions in
such situations. But, Robert Cook, a special counsel with the Federal
Reserve Board, said that such arrangements make it imperative that lenders
"ensure the appraisals are accurate."

 As it turned out, the appraiser Mr. Percudani used most often, Dominick
Stranieri, surrendered his license in 2002 to settle an unrelated case in
which the state alleged that he overvalued homes by using an improper
method. Mr. Stranieri has said in legal proceedings that he acted
independently in valuing Mr. Percudani's homes and was not asked to meet a
predetermined price.

 Chase says that for much of its Pocono venture it had Mr. Stranieri on an
internal watch list, and that it returned him to good standing in 1999
because there were no further concerns about his work. But on three
occasions starting in April 1998, Chase consultants who reviewed homes
appraised by Mr. Stranieri concluded that he overpriced them by as much as
50 percent, according to interviews and records.

 One appraiser's report in 1999 even warned that federal officials were
seizing industry records to investigate widespread overpricing. Chase says
the loan officer who got this report only handled refinancing and did not
alert Mr. Spaner's office where new loans were being made.

 Just how much profit Mr. Percudani built into his prices is not clear.
While builders typically make $7,500 to $15,000 on homes that sell for
$150,000, he cited figures in the lawsuit with his partner indicating that
they made roughly $62,000 on each of the 150 homes they sold in 1994 and
1995.

 Some parcels of land by themselves had drastic appreciations. For example,
Mr. Percudani charged Mr. Vazquez $27,000 for a third of an acre that he
bought not quite six months earlier for $5,300, according to county title
records.

 Mr. Percudani's lawyers said his profits were more typically in line with
the industry and that the land prices included marketing costs. Numerous
buyers, they added, have been able to borrow more money on their homes,
which shows, they say, that those homes were fairly priced.

 But many homeowners like Ms. Davis tried to refinance their homes only to
learn with a shock that they were worth far less than they thought. Ms.
Davis's problems began when she needed a new appraisal to get a lower
interest rate.

 The first two appraisers she called said that her $143,653 house was
actually worth $90,000 or less. A third flatly refused to come out, when he
learned where she lived.

 Chuckling, he told her, "Lady, you're not going to be able to refinance."

Still More Adversity

 One man who worked with Mr. Percudani says he saw even worse trouble ahead
for many of the Pocono buyers.

 Elwood Kurtz, the owner of Homestead Land Services, had been retained by
Mr. Percudani to validate property records. But as he sat with homebuyers in
closing their deals, Mr. Kurtz says he worried that they could not afford
the homes ‹ no matter how fairly priced they were.

 "I really felt that a majority of them were getting in over their heads,"
he said. "They had to fit into their budgets the cost of commuting, food,
taxes, and it seemed like $10 one way or another would make it or break it
for them."

 Mr. Kurtz said he reported this and other concerns to state officials in
1996 and never heard back.

 In one sense, Mr. Percudani may have been doing just what the government
wanted him to do: help people buy their first homes. He had a credit service
through which he would pay their delinquent bills. He had a savings plan to
help them accumulate the necessary down payment. He was infinitely patient,
coding their accounts with a medals system based on how fast they could save
‹ ranging from platinum for those who were ready at once to bronze for those
needing as long as two years.

 Mr. Percudani also typically paid several thousand dollars of the buyers'
closing costs and even covered their rent while their homes were built.
"Gene was ahead of the curve in the United States, and it's only in the last
couple or three years that other institutions have encouraged this," his
lawyer, Mr. Preate, said.

 Chase says Mr. Percudani did not tell it about the rent payments, which in
effect subsidized the buyers' down payment. This would have increased its
risk since lenders view the down payment as a key measure of the borrower's
ability to repay a loan. "If Chase had known about the builder's separate
side agreements, Chase never would have approved these loans, as they were a
violation of our underwriting standards," said Charlotte Gilbert-Biro, a
Chase spokeswoman.

 Mr. Percudani's lawyers scoff at Chase's assertion, saying the rental
payment was featured in his advertisements and that all lenders take pains
to verify that down payments really come from the borrowers and not from a
relative or the home seller.

 But whatever the truth, the people who did this verification work under
contract for Chase say they were hampered in several ways. They say Chase
did not tell them that Mr. Percudani, the loan broker, had also built the
homes, so they were not especially cautious when reviewing the appraisals
and loan applications.

 Two such reviewers, known as underwriters, also say they were blocked at
times from obtaining the bank statements they needed to trace the down
payments. Lynda Davis, who underwrote the bulk of the Pocono loans, says
that she told a Pennsylvania grand jury in 2003 that Mr. Percudani's loan
brokerage would refuse on occasion to forward the statements, and that when
this happened Mr. Spaner, the Chase manager, instructed her to rely instead
on a ledger provided by the brokerage, which did not reveal the rent
subsidy. "I went along with it because I felt it was on Chase's head. He
told me it was O.K. with Chase," Ms. Davis said she told the grand jury.

 Reached at his office, Mr. Spaner said he wanted to discuss the Pocono
loans but needed permission from Chase. Chase officials declined to make Mr.
Spaner available but said he denied the underwriters' assertions. "Chase has
not seen a shred of credible information to support any of these
allegations," Ms. Gilbert-Biro said.

 In interviews and written statements, Chase officials defended their
lending methods. They said they use the best available systems to detect
problem loans and are continuously making improvements. For instance, Chase
now requires two appraisals on Pocono properties.

 Chase said that it has successful relationships with other builders who act
as their own mortgage brokers and that it has confidence in its wholesale
lending operations. "One of the things we pride ourselves on is our
nationwide capabilities and our local execution," the bank said.

 Chase further said that its share of foreclosure proceedings in Monroe
County is at most 7 percent, and that numerous other lenders are caught up
in the debacle.

 As it turned out, Chase almost dodged the pain.

 The bank regularly sold its Pocono loans to Freddie Mac, the
government-backed securities giant that is under its own federal pressure to
increase minority lending. But the agency, whose own appraisal reviews were
finding numerous instances of overpricing, eventually got cold feet. In the
fall of 2000, Freddie Mac told Chase it was investigating. Chase then halted
its dealings with Mr. Percudani. And, in a rare move, Freddie Mac asked the
bank in 2002 to take back the Pocono loans.

Inquiries Into a 'Nightmare'

 By the late 1990's, things were so bad that the county sheriff was pleading
for more staff to handle the foreclosures, which swelled to 941 last year
from 385 in 1995.

 The county controller, Kelly Lewis, dubbed the issue a "nightmare" for
homebuyers in his winning campaign for the state legislature. In April 2001,
a local newspaper, the Pocono Record, published a series of articles
detailing the homebuyer woes. "For the next week, all I did was answer phone
calls and e-mails from people who said they had been victimized," the
reporter, Matt Birkbeck, said.

 But drawing attention to the problems and doing something about them were
two very different things. The following month, a dozen law enforcement
officials met privately in the Monroe County Courthouse to find a solution,
but little came out of the meeting.

 The United States Department of Housing and Urban Development determined
that few of the loans involved its programs.

 The United States attorney for middle Pennsylvania decided against pursuing
criminal action against Mr. Percudani, citing Chase's own reluctance to
pursue the matter. "According to Chase's counsel, this whole episode has
been a public relations nightmare, and they do not want to publicize this
matter any further," an assistant United States attorney, Bruce Brandler,
wrote in an Aug. 18, 2003, letter to state officials that was obtained by
The New York Times. Chase says it told Mr. Brandler that it would cooperate.

 The Monroe County district attorney's office began a sweeping investigation
that distilled more than 200 interviews into a scathing report on possible
price gouging, coercion and tax evasion by developers, brokers and real
estate lawyers. A mortgage broker was charged with fraud in connection with
arranging a loan. But the district attorney, Mark Pazuhanich, opted against
pursuing more cases by citing his limited resources and a warning by the
local court that its judges had too many conflicting interests to preside
over the matter.

 Mr. Pazuhanich had his own conflicts, he said in a 2002 letter asking the
state attorney general to take over the case. Mr. Percudani and another
developer under scrutiny had been "major" contributors to his most recent
election campaign, the committee for which included the father-in-law of Mr.
Stranieri, the appraiser who worked with Mr. Percudani. According to Mr.
Percudani's lawyers, Mr. Pazuhanich and two assistants also had rented Mr.
Percudani's vacation home on St. Martin in the Caribbean several years
before he began the investigation. After bowing out of the inquiry, Mr.
Pazuhanich ran for a judgeship and placed his campaign signs on Mr.
Percudani's land.

 Finally, in 2002 homebuyers felt some progress was being made when the
state attorney general filed the first of two civil suits against 26 local
home builders, appraisers and mortgage concerns, including Mr. Percudani and
Mr. Stranieri, alleging deceptive practices. Mr. Percudani and Mr. Stranieri
have denied the allegations and will defend themselves, their lawyers said.
Mr. Percudani continues to build and sell homes in the Poconos.

 Several homebuyers including the Vazquezes have sued Chase as well, saying
the bank conspired with Mr. Percudani to defraud them. Chase denies the
allegations and says it will defend itself. Jim Sysko, a deputy state
attorney general, says he accepted Chase's contention that it was deceived
on the rental payments, but was weighing the bank's overall role when Chase
offered to help the buyers by reducing their mortgages.

 Frustrated by the events, homebuyers have picketed the Monroe courthouse,
the statehouse in Harrisburg and even the F.B.I. headquarters in Washington.

 "It's like the Wild West out here," said Al Wilson, the founder of the
Pennsylvania Homeowners Defense Association, an advocacy group. He added,
"No one is being held accountable."

A Chance of More Poconos

 In some ways, the Poconos is a place apart, where a combination of lax
regulation, a history of corruption and a huge market in New York were the
perfect ingredients for a financial storm.

 Some buyers even blame themselves. "I brought people up here under the
pretense that this is a nice place," said Bob Holst, an electrician, who
said he appeared on Mr. Percudani's promotional video in exchange for some
home repairs.

 But few doubt that what happened here has the potential to happen
elsewhere.

 For all the attention paid to the national homeownership rate, little is
known about the hundreds of thousands of buyers who fail each year. Lenders
decline to say how many are minorities or first-time homebuyers, but early
last year the foreclosure rate passed 1.1 percent, or roughly 560,000 homes,
compared with a rate of 0.86 percent in 1995 when the homeownership campaign
was started.

 George McCarthy, a housing economist at the Ford Foundation, says the
easier credit unleashed by the homeownership drive has exposed vulnerable
buyers to fraud and excessive debt. Already, the F.B.I.'s caseload of 500
mortgage fraud investigations is up fivefold since 1997.

 "The risk of more Poconos is huge," Dr. McCarthy said. "In every affordable
market in the country we are seeing these fast run-ups in prices,
double-digit appreciation, and the problem is that people who are not well
versed and able to tell what the true value is can get hoodwinked."

 Should housing prices drop, he says, the fallout may track the stock market
scandals in which sundry accounting irregularities, ignored during the
booming 1990's, were exposed. Prospective buyers should be warned that a
house is an investment that can lose value, he and other housing experts
say.

 Many people, no doubt, were helped by the homeownership drive, and in the
Poconos there are many buyers who say they are pleased with their homes and
the move. There is also hope that a rising market will compensate for any
overpricing.

 Still, Marc Weiss, who helped shape the Clinton administration's homebuyer
campaign, says the program did not have enough safeguards to protect
first-time homebuyers. "We were so focused on expanding homeownership that
we probably didn't put enough attention with our private sector partners on
what is needed to help people from getting in trouble," he said. Now, those
in trouble are trying to get out.

 The Vazquezes moved into their Pocono home. Had a son. Made it through job
losses and unemployment. But only by getting deeper in debt did they ward
off two foreclosure actions.

 Then in October 2003, after suspending their payments to resolve the
lawsuit against Chase, the bank brought its third foreclosure against them,
which is pending. "There can't be words to describe the tears I cried,
losing my home and having to be an embarrassment for my family," Mrs.
Vazquez said.

 Ms. Walton never even made it to the Poconos. She was paying into the
credit counseling and savings plan when Mr. Percudani suspended that
program. The family adores the game Monopoly, and now has a running joke
that it is the only way they will ever buy a home. Better to laugh than cry,
Ms. Walton said.

 "We're pretty much living hand to mouth now," she said. "It was a big
letdown for the boys. It's like being told you can have a puppy, petting it,
and then never being given it."

 As for Ms. Davis, it is difficult to pinpoint, she says, just what sent her
over the edge. There was the $3,000 in annual school and property taxes, a
$3,600 yearly heating bill, and $500 in homeowners' association dues, which
she says she had not expected.

 Soon after Christmas of 2000, her husband announced that he would stay in
New York. The talked-about train to New York City had never materialized.
The traffic tie-ups were endless. "All you talk about is bills, bills,
bills," she recalled him saying.

 "I just shut down," she said. "It was just heartbreaking."

 Their divorce left Lasscelles alone in the house all week and Ms. Davis
wracked with guilt as she stayed in New York weeknights to save the bus
fare. She did not dare tell anyone and slept with her cellphone on her
pillow. On weekends, she would return home and pack. For months, they lived
frozen lives with boxes filling every room. As much as homelessness, Ms.
Davis was terrified by the shame of forcible eviction, but she eventually
abandoned the Poconos altogether for a rental back in Brooklyn.

 On March 24, Chase won a foreclosure judgment against her, the penultimate
step before it can sell her house.

 She recently went to her local bank for a credit card. She had no luck. But
she got friendly with the woman who took her application. They talked about
real estate and the woman excitedly told her about having just signed for a
new home in the Poconos.

 "And the best thing about it," the woman told her, "is that there's a train
coming."

http://www.nytimes.com/2004/04/11/nyregion/11POCO.html