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Bernie Kellman and his daughter Francey 3, at their home in Richmond, Calif., on Wednesday August 6, 2008. Kellman has enough of a salary and the will to stay in his home but can't get a loan because his loan has been sold to a bank that simply aren't in the business of restructuring. Kellman rents rooms out to try and make his $2700 a month payment on his home that he says is currently valued at $277,000. (Susan Tripp Pollard/Contra Costa Times)

This is a story about dead-end dialing, deaf ears and default notices.

It's also about a single dad with a little girl, an ex-bike messenger who grew up late, leapt into homeownership and crashed on the rocks. But his tale of frustration is so familiar now across the Bay Area, it's less about how he got here than why he can't seem to fix it.

Bernie Kellman says he can swing the two-story Richmond house where he raises 3-year-old Frances on an $80,000 salary working as a psychiatric social worker for Alameda County. But he got nowhere over countless calls pleading to rework a bum loan after it was sold and a new lender bumped his monthly payments by more than $700, to $2,700, citing a tax error.

This spring, his mortgage changed hands again, to a subsidiary of Lehman Brothers Bank. Now it's in the hands of a loan servicing firm that boasts foreclosure expertise and offers only boilerplate responses.

He figures he has made at least 100 calls in the past year, each time starting from scratch. For months he got the cold shoulder, said Kellman. Now he's not even sure whose neck is attached to his ARM.

"I've never gotten past the first level of customer service," said Kellman, 50, who faces a November foreclosure date and receives stacks of postcards from lawyers and shills with sketchy offers of salvation. "I can afford a home. I want someone to look at my loan. But I'm scrap metal."

Despite pressure from state and federal lawmakers and public pledges to work aggressively with able borrowers, many like Kellman beat against an impenetrable wall of indifference or worse. For those who manage to find an ear, often with help from advocates, the result is often temporary relief — a short-term interest rate break, for instance, or lumping overdue payments onto the principal balance.

Reductions in principal, on mortgages that now dwarf the home's value, are nearly unheard of, even among the most willing firms. Just 2 percent of modifications — or less than 1 percent of all loan "workouts" — resulted in a reduction in principal, according to a monthly state survey of a dozen California lenders and servicers that agreed to join a state program to streamline their processes.

"It comes down to common sense. They start doing principal reductions for people that deserve it, everybody and their mothers will come for one," said Moe Bedard, who launched loansafe.org, where borrowers share their miseries and tips on breaking through the barriers with lenders.

Just how federal approval last week of a $700 billion bailout package could help remains uncertain. Among its provisions, the bailout bill allows for loan guarantees to encourage mortgage holders to make "meaningful modifications" and requires the government to come up with a plan to help homeowners with the loans the government owns or controls. Much depends on what the government ends up buying.

"The bottom line is, (the feds) can afford to be a lot more aggressive because they don't need to be as worried about the bottom line as an individual lender would be," said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. "It's going to be interesting to see where they're going to get the resources to handle all that volume. The scale they're going to be dealing with is going to be pretty monumental."

It remains to be seen whether the government buys up the worst debt, leaving taxpayers on the hook for the mortgages of those who stepped into the housing market far too deep.

In the meantime, some lenders have begun to step forward, state figures show. Among two dozen subprime lenders and loan servicers who agreed on Gov. Arnold Schwarzenegger's voluntary plan — including several of the state's largest — modifications doubled from January to July, to more than 12,000. They did an additional 4,000 forbearance plans, but also 17,000 foreclosures and short sales. Forbearance simply allows a borrower to catch up, paying later for the missed interest. In short sales, the lender agrees to let you sell the home for less than the mortgage value.

"It's gotten better. We've heard a lot of (horror) stories. On the other hand, what we're seeing in our numbers are literally thousands of people having success," said Mark Leyes, spokesman for the California Department of Corporations, which does the surveys. "It's good news in really almost every category, with the exception of foreclosures."

Indeed, foreclosures statewide rose 125 percent, to 121,000, in the second quarter from the year before, according to MDA DataQuick. In the Bay Area, they rose even quicker. And some big subprime lenders, like Wachovia, have drawn the ire of activists for being slow to the table.

The emerging nature of an intricate securities market has added to the woes of struggling borrowers. Loans have been packaged, sold and resold at a discount, leaving borrowers to chase down lenders or servicers that may have little incentive to help them.

In many cases, advocates say, it costs servicers more money and time to work out a modification, particularly on loans that are wrapped up in myriad investments. Stories like Bernie Kellman's run rampant, said Kathleen Day of the Center for Responsible Lending.

"They don't have enough beating hearts to (rework) the individual loans. They have a disincentive to do it. It just takes too long, servicing it on behalf of a lender who has probably sold the loan and it's sliced and diced on the market," said Day. "It's really sad. If anyone figures out how to punch through customer service, they'll win a Nobel Peace Prize."

State lawmakers have made attempts to help, including a bill passed this year that requires lenders to contact homeowners at least 30 days before filing a default notice to "explore options" to avoid foreclosure, and they must advise borrowers of the right to a later meeting. It also authorizes the homeowner to designate a counseling agency or attorney to discuss options with the lender or servicer.

Kellman, for one, is cynical about lawmakers' efforts.

"It appeared to be foreclosure could not happen without a sit down face-to-face," Kellman said, adding that he sought help from housing advocates but his financial plight wasn't deep enough. "Despite all that media blah-blah about solutions, no genuine human being has ever come close to offering to sit down to help me try to save my home."

The best he could muster was a financial checklist for a short sale. An official with the servicing agent, Quality Loans, declined to discuss Kellman's loan with the Times, saying they had no authority to modify the loan. A spokesman for Lehman Brothers, Brian Finnegan, repeatedly promised to track down information on Kellman's loan and the record of modifications by the subsidiary, Aurora Loan Services, but never returned calls.

Last week also marked the start of a $300 billion federal program to allow troubled borrowers to refinance into more affordable, federally-backed loans. The program is voluntary for lenders, who may be reluctant to take steep losses on loan principals.

Day and other advocates say those voluntary programs have failed, noting that foreclosures still far outnumber modifications. They argue that only mandatory workouts can stem the onslaught of foreclosures, the continued drop in neighborhood home values and more economic fallout. But their push to place mortgage modifications in the hands of bankruptcy judges caved beneath the weight of the mortgage banking industry.

Even now, Kellman still hopes for a taste of good fortune. He now owes $470,000 on a home worth less than $300,000, yet he still wants to raise his daughter there in the two story rock-faced house with the shaded yard and the big park across the street. Maybe he'd join the school board, he says.

When the old lender upped his payment — he calls the loan a broker sold him a "bait and switch" — Kellman kept paying the original amount, hoping to show good faith and get the lender's attention. Before long, he was two months behind and getting electronic recordings when he picked up the phone. Last month, with notice of a foreclosure date, he finally stopped paying. Now he's tracking rentals online, in case his home gets sold.

"I've got a good job. I'd be a good person to loan money to. Someone could make a few pennies taking my $2,000 a month. This is not an investment. This is a home for me and my kid," he said. "At the end, I will have to say, get your ... house. I'm letting the kid crayon the living room."