NOVEMBER 24, 2009
Distressed Homeowners Ponder Whether to Stay or Go
By JAMES R. HAGERTY
WSJ
SCOTTSDALE, Ariz. -- Brian Gindlesperger says he has never been late on a mortgage payment and considers paying off his loan "the right thing to do." But as the value of his home continues to fall, he is starting to wonder whether paying his debt is the smartest thing to do. Four years ago, Mr. Gindlesperger, a police officer, and his wife Kelly, a real-estate agent, paid $650,000 for a four-bedroom house in this wealthy Phoenix suburb. They believed they were getting a bargain price for the area and made a 20% down payment, using a 30-year fixed-rate mortgage to pay the balance. To help pay for their eldest daughter's college costs, home improvements and a wedding, they took out a second mortgage against their home. Now they owe about $647,000 on the two mortgages.
But home prices on average have dropped about 48% in the Phoenix area since peaking in mid-2006, according to the First American CoreLogic index. Mr. Gindlesperger figures his home now probably is worth only $375,000 to $425,000, even though it comes with a four-car garage, a pool and a 1.2-acre lot. Zillow.com, a Web site that makes home-value estimates based largely on recent sales of nearby properties, pegs their house at $374,000. Families like the Gindlespergers are among millions of Americans who are "underwater" on their mortgages, owing more than the current value of their homes, and they face a dilemma: Keep making payments and hope for the best -- or walk away, give up their home and accept the seven-year blemish of a foreclosure on their credit record.
No one is forcing the Gindlespergers out of their home, but sometimes they have to dip into savings to make their mortgage payments. Like others who are underwater, they lack a cushion of equity that would protect them if illness or a job loss slashed their income. That makes them more vulnerable to foreclosure because they couldn't count on selling their home for enough money to satisfy their lenders. Only a huge rebound in home prices -- something that appears unlikely in the near term -- would give the Gindlespergers a shot at having equity in their house again.
Some of their neighbors have walked away from mortgages they saw as losing bets. That is tempting because the Gindlespergers could rent another house for much less than they now pay each month for their mortgages, property taxes, insurance and maintenance costs. On the other hand, they don't want to move. "It's our home. We have horses. We have dogs," says Mr. Gindlesperger. The Gindlespergers still aim to hang onto their house and wait for a stronger economy to boost its value.
But they can't wait for better days indefinitely, Mr. Gindlesperger says. "I've got a trigger point." If the family savings fall below a certain point, they would have to consider all options, including an attempt to sell the home for less than the loan-balance due and get the lenders to agree to forgive the rest of the debt -- a transaction known as a short sale. "We've always been responsible homeowners," he says. "We're sitting here draining our assets to keep current" on the mortgage. But, at some point, he adds, "you have to limit your exposure to being a victim in this."
Printed in The Wall Street Journal, page A4
http://online.wsj.com/article/SB125902556993561567.html (subscription)
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I wonder whether, on other occasions, he dislikes "big government" I really cannot feel sorry for him. If anyone should be helped, it is the ones who purchased homes according to their means and now lost their jobs and health care. Or who are faced with huge medical expenses.