How one family's mortgage is linked to meltdown

By Daniel Trotta

HAMPTON BAYS, New York (Reuters) - Cynthia Goldrick's daughter is in and out of the hospital for brain surgery, her mother has Stage 4 lung cancer and her father has moved into a home for the elderly.

So when the Goldrick family's adjustable rate mortgage reset while husband Patrick was off work for a job-related injury, it eliminated the thin margin between their income and the mortgage payment and put them on the road to foreclosure.

While these circumstances may seem extreme -- a perfect storm of bad luck -- the basic economics of a hike in mortgage rates and a bank's inability or unwillingness to modify terms have been shared by many Americans over the past year.

The Goldricks took out a $375,000 mortgage in 2005, when they refinanced a previous mortgage on their 1,800-square-foot (167-square-meter) house in semirural Hampton Bays, some 90 miles east of New York city.

At first, the interest rate was 6.5 percent and the monthly payment was $2,370. After two years, it rose to 9.5 percent and suddenly the payment of $3,850 was beyond the means of a family living off Patrick Goldrick's salary as a cable guy.

Appraised at $605,000 in 2005, the house today is surrounded by others with "For Sale" signs out front and is probably worth less than the outstanding loan.

It is also the only home the Goldrick children have known. "It's just walls. But this is where my daughter comes home after surgery, so they're comfortable walls," Cynthia Goldrick said.

The loan was granted by Rose Mortgage Inc. of New Jersey and is being serviced by Saxon Mortgage Services, a unit of Morgan Stanley.

But the mortgage is in the hands of neither because it was securitized, pooled with $700 million worth of mortgages into an investment vehicle created by Morgan Stanley known as IXIS 2005-HE4, and sold to investors.

Such pools constitute much of the so-called toxic assets at the heart of the worst financial crisis in the United States since the 1930s.

Today's investors in IXIS 2005-HE4 include Prudential Insurance, Pimco Advisors, Western Asset Management and Legg Mason -- institutions that manage money for the wealthy and the population at large.

NOT JUST A HOUSE BUT A HOME

"We didn't jump on the refinancing bandwagon to take a cruise or buy a Mercedes," Cynthia Goldrick said. "We refinanced to give my child a life, not a lifestyle, but a life."

The Goldricks' 10-year-old daughter, Erin, has had 10 operations for hydrocephalus, a Chiari malformation and spina bifida. Most of the medical bills are paid by insurance and a fund established from the settlement of a malpractice suit over Erin's treatment as a baby.

Erin is an honor student who would have made high honors but for a score of 83 in dance. She bears little outward sign of her medical history, unless she pulls up her hair to show scars on her neck and an open wound on her scalp. She looks after her little sister, Emily, 6, and their room is decorated by dozens of stuffed animals.