New Loan Mod Programs and 125% LTV Mortgages Coming? Popularity: 1% [?]

Want to refinance your mortgage? If you wanted to qualify for a Fannie Mae or Freddie Mac mortgage, you needed to have at least 20 percent equity in your home. But with home values dropping dramatically over the past 18 months, it’s getting tough to find homeowners who have any equity in their properties at all.

In fact, one-third of all homeowners are underwater with their mortgages – meaning that they owe more than their homes are worth.

Thats an amazingly scary number…1/3 of all US homeowners are upside down. There are many whom are no expecting that that number will increase to easily 50% in the next 12-18 months. Believe it or not there are still agents who don’t think that they have to learn how to list and sell short sales. In this market…with so many sellers needing the services of an agent who knows (really knows) how to list and sell short sales the demand for agents with these skills is skyrocketing. Watch the FREE Agent Short Sale Secrets video and then download the FREE Agent Short Sale Secrets book NOW.

If you owe more than your home is worth, you can’t refinance your mortgage to take advantage of today’s close-to-jaw-dropping mortgage interest rates. Or, at least you couldn’t until the federal government took over Fannie Mae and Freddie Mac, and then asked mortgage lenders to refinance home loans that were up to 105 percent of the value of the home.

In other words, if your house was worth $100,000, and you owed $105,000, you could still refinance your mortgage.

The problem is so many homeowners today are much farther underwater with their mortgages that they can’t take advantage of interest rates that are near 50-year lows.

Last week in Washington, D.C., Federal Housing Finance Administration director James Lockhart admitted that the Making Home Affordable refinancing program could be more aggressive. When asked how high the  loan-to-value ratio could go, Lockhart said his team was looking at raising it to 125 percent.

That means if your house is worth $100,000 but you owe $125,000, you could still refinance your mortgage to take advantage of lower interest rates – provided you qualified for the loan.

That’s a very signficant difference and it will allow millions of homeowners to refinance their mortgages who currently cannot. The 125 percent loan-to-value ratio hasn’t been finalized, but Lockhart said several times that the government has to finalize the loan modification and loan refinancing programs so that mortgage lenders can develop the necessary software, train their people and get moving.

“There are different alternatives and ideas being floated around. We want to concentrate people around one idea and go for the refinancing or loan modification. What we don’t want is for people to wait for the next best program. We did the streamline loan modification program and since there were rumors a better program was coming, we had no takers for that program.”

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Well, who wouldn’t want to wait for a better program? Throughout the housing crisis, there’s been one better program after another. If you bought a house in 2008, you only got a $7,500 tax credit that you had to pay back in $500 annual installments over 15 years. If you buy this year, you get an $8,000 tax credit that you don’t have to pay back, ever, and you’re even permitted to use it for your closing costs and down payment above 3.5 percent with an FHA loan. Now, there’s talk about making it a $15,000 refundable tax credit.

Lesson learned? It’s worth waiting for the next great program that will stabilize the housing market.

Lockhart said another big problem is that a lot of homeowners aren’t answering their phones or reading their mail. That’s the benefit of (or problem with, depending on your perspective) Caller ID. He wants homeowners in trouble to realize that getting a 2 percent loan for five years, which will work its way up to 5.4 percent over an additional four years is an opportunity too good to pass up.

Great idea. Now, if he could just get people to realize that interest rates on the loan modification program will never drop below 2 percent – or will they?

Source: Moneywatch.bnet.com

Popularity: 1% [?]

Breaking News: Is The Stage Set For Housing Recovery? Popularity: 1% [?]

Excellent breaking news from Inman News Features about a new Harvard study about housing. Credit to Inman for this excellent reporting.

Conditions that could support a housing recovery are taking shape now, but job losses, falling home prices and tight lending standards mean demand for housing remains “remarkably low,” according to a new Harvard University report out today.

Home-price declines and low interest rates have restored housing affordability in many markets, and a dramatic reduction in home construction should eventually improve the balance between housing supply and demand, the 2009 State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University concludes.

Sales of distressed properties, temporary first-time buyer tax credits, and low interest rates have helped stabilize sales. But as homes continue to enter the foreclosure process in record numbers, the number of vacant housing units for rent, sale or being held off the market is at record highs, putting pressure on prices.

“We do see some signs of stabilization, more in home sales and less so in prices,” said Nicolas Retsinas, director of the Joint Center. “The macro forces pushing back against recovery include job losses and foreclosures, which are adding to inventory and motivating sellers to keep lowering their prices.”

The report estimates 5.7 million jobs were lost between December 2007 and April 2009, and another 11 million Americans were working part time involuntarily or had stopped looking for work altogether. Gains in homeownership rates made during the boom have been erased, falling from 69 percent in 2004 to 67.8 percent last year, a level last seen in 2001.

Although housing is becoming more affordable now, the report also noted that the number of households paying more than half their incomes for housing jumped from 13.8 million in 2001 to 17.9 million in 2007.

How prospective buyers respond when home prices stop falling and the economy improves will determine whether and when the homeownership rate turns up again, the report said. In the near term, demographic forces favor the rental over the for-sale market.

But the opportunity to snag a home at a bargain price could lure many to buy homes, even if credit remains relatively tight. Challenges to be overcome include reviving mortgage lending that lacks federal guarantees, moving Fannie Mae and Freddie Mac out of conservatorship, and overhauling regulations to avoid a repeat of the market meltdown, the report said.

In the long run, immigration and demand for housing by “echo boomers” could improve the balance between supply and demand.

Echo boomers are entering their peak household formation years of 25–44 with more than five million more members than the baby boomers had in the 1970s, the report said, which should help keep demand strong for the next 10 years and beyond and bolster markets for rentals and starter homes.

A deep, prolonged recession is likely to suppress immigration, the report said, so household growth could total as much as 14.8 million between 2010 and 2020, or remain closer to the 12.5 million total seen from 1995 to 2005.

But even the report’s more conservative assumption for immigration would result in minorities fueling 73 percent of household growth from 2010 to 2020, with the minority share of households projected to increase from 29 percent in 2005 to 35 percent in 2020.

Source: Inman News Features.

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90 Day Foreclosure Moratorium Forced On Banks | Mortgage Loan Modification Popularity: 1% [?]

HREU Students and future students….here we go again…another foreclosure moratorium….remind me, did the last one work?

California implemented a new foreclosure moratorium on Monday to goad banks into modifying mortgages for struggling homeowners.

Hey guys, maybe we should talk about what the downside is to doing this….as in:

1) More people actually missing payments because they now know they can stay in their homes…payment free….for 12+ months. In the olden days when the word foreclosure was akin to leprosy the LAST thing someone would stop paying was their home. Why? They needed a place to LIVE. They would have their cars repo’ed, their cable turned off….and east rice and Ramen Noodles. Not today…not when you can miss payment (after payment) and more or less game the system…..all the while living payment free. All these moratoriums are actually motivating people to miss payments. Hello…anyone listening?

2) When doing short sales…seconds will demand more from the first if they know they first cant foreclosure because of the moratorium. That means that these well intentioned moratoriums create MORE foreclosures…not less.

The California Foreclosure Prevention Act, signed by Gov. Schwarzenegger in February, adds 90 days onto the time period between when homeowners default on a loan and when their home can be repossessed in foreclosure. Banks can avoid the 90-day holdup by having a comprehensive program in place to make mortgages more affordable by reducing the interest rate, extending the loan term, or reducing or deferring some of the principal. Such programs must be approved by regulators.

“The goal is to compel banks to do systematic loan modifications across California to reduce our foreclosure rate, which is the highest in the nation,” said Assemblyman Ted Lieu, D-Torrance, who wrote the bill. “Until we slow that down, the California economy cannot recover.”

Ok, this I agree with. Loan mods are a great solution for some borrowers. Folks who want to keep their homes and can make the modified payments. Realtors learn how to mod your own home loan now..and then start your own loan modification business. Make money now from helping others save money! Watch the FREE Agent Loan Mod Secrets video now!

Experts said the California initiative should complement the Obama administration’s foreclosure prevention plan, which offers financial incentives to servicers who complete loan modifications.
“This law is most useful as a stick to supplement the Obama administration’s carrots to get loan servicers to adopt a much more systematic framework for doing loan modifications,” said Paul Leonard, director of the California office in Oakland for the Center for Responsible Lending. “It is a useful nudge to get more servicers to sign contracts to adopt the Obama modification plan.”

In the past few months, 15 servicers have agreed to implement the Obama plan, according to the Web site MakingHomeAffordable.gov. Government spokesmen have said that about 100,000 homeowners nationwide have been sent offers for trial modifications, a relatively modest number compared with the administration’s goal of helping 3 million to 4 million homeowners avoid foreclosure.

In California, the Department of Corporations will determine whether banks qualify for an exemption from the moratorium. About a dozen servicers had applied as of last week, said department spokesman Mark Leyes; they will now have a 30-day grace period while their applications are reviewed. A list of the participating banks will be at www.corp.ca.gov.

Leyes said the department will monitor the servicers’ success rate regularly, not just accept their word that they have a program in place. Still, he added, “There is no guarantee in the law or anywhere else that anybody is going to get a loan modification. What we’re looking for is a good-faith effort on the part of the servicer to do what they can to make the loan affordable and sustainable for the homeowner.”

The California law, like the Obama plan, says that servicers can determine whether a foreclosure or a loan modification is more cost-effective and can pick the cheaper option.

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Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, said lenders generally do not like moratoriums because they haven’t worked in this past, but they are taking a wait-and-see attitude toward the new California law because it includes a pathway for banks to avoid the delay.

“Because there is so much similarity between some of the provisions and requirements in this law and the new programs at the federal level, my guess is that a lot of the larger servicers will have no trouble qualifying,” he said.

In September, California implemented another law that required servicers to make more efforts to contact homeowners before foreclosing. That law caused a dip in the number of foreclosure filings throughout the fall months, but they have resurged this year now that lenders have caught up with the requirement.
Source: sfchronicle.com.

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Sliding Prices Leads To Most Sellers Being Upside Down Popularity: 1% [?]

HREU Students, here is a snap shot of what is happening across the US.

Never mind a profit. Breaking even would have been nice.

But Tammy and Charles Bloomer are losing more than $100,000 on their Silver Spring home, which they bought for $525,000 four years ago. The house, now under contract to be sold, lost value even though the couple had remodeled the kitchen and replaced the roof, furnace and windows.

“Unfortunately, we bought at the peak of the market,” said Tammy Bloomer, a federal worker who is moving to take a job in Chicago. “The market is terrible now.”

In the past six months, most Washington area sellers have lost money on houses they purchased since prices started climbing in 2000, according to a Washington Post analysis of residential sales. In the first three months of this year, 62 percent of local home sellers accepted less than they paid for their homes, in part because aggressively priced foreclosures have dragged down prices around the region.
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While the drop is painful for sellers, experts say it is a necessary part of getting past the excesses of the boom years. This region experienced one of the sharpest run-ups in home prices in the nation. Those prices must be brought down in order for buyers and sellers to deal with each other on more equal footing, as they had for decades before the boom.

Predictions vary about when the region’s prices will hit bottom. They may keep tumbling until late 2009 for close-in communities and until 2011 in outlying suburbs, according to a study by real estate research firm Delta Associates and the local Multiple Listing Service. But so much depends on whether the economy suffers some unforeseen blow and on how many more foreclosures the banks add to an already-bloated housing supply.

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Of course, these falling prices are reason to celebrate for would-be home buyers, especially coupled with low mortgage interest rates and the $8,000 federal tax credit for first-time buyers.

But as long as distress sales continue to dominate, the market will not bounce back to normal, said Nicolas P. Retsinas, director of Harvard University’s center for housing studies. “The norm requires that a preponderance of transactions take place between willing buyers and sellers, not sellers who would take any price to unload a property.”

By that measure, Kimberly Thompson’s Upper Marlboro community has not hit bottom.

In Thompson’s Zip code, the proportion of homes in some stage of foreclosure is twice the national rate, according to RealtyTrac, a private company that follows those statistics. Many more homes, including her own, are listed as short sales. Those are arrangements that allow homeowners to sell for less than they owe on their mortgages.

Thompson and her husband bought their house for $564,000 in late 2007. He lost his job six months later. By then, the home’s value had dropped by $100,000. This week, it is under contract for $372,000.

“We were down to one income, one kid and one on the way,” said Thompson, a computer programmer. “We realized we did not have money to cover the mortgage and our other expenses.”
Never mind a profit. Breaking even would have been nice.

Not everyone selling a home is doing so under duress. Many long-time homeowners with plenty of equity are making money when they sell, though not as much as they would have a few years back. Others may be losing money, but that does not mean they are on the brink of foreclosure.
This Story

Emily Lenzner, for instance, has plenty of equity in her Adams Morgan condominium. She bought the condo in 2005 for $715,000. Two years later, she moved to a house with her new husband and their four kids. She rented out her place for a while, then listed it for $849,000. No takers. It’s back on the market for $674,000.

“I’m going to take a loss, but I can really use the cash,” Lenzner said.

As the region’s foreclosure crisis has deepened, outlying suburbs have taken a bigger hit than more established areas. That’s because there was a higher proportion of recent sales in those fast-growing suburbs, leaving them more exposed to the subprime mortgages that were popular at the time.

Subprime loans catered to people with blemished credit, often allowing them to buy homes they otherwise could not afford. That helped inflate prices. But these borrowers began defaulting in record numbers in 2007. Foreclosures followed. The markets that crashed the hardest were the ones where prices had climbed the fastest.

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Home prices have held steady in the District, according to The Post analysis. In the Virginia and Maryland suburbs, prices for single-family homes are down to where they were five years ago. In Prince William and Loudoun counties, a flood of foreclosures has pushed prices so low that bargain hunters have flocked there in recent months, helping to boost sales.

But while in past slumps a surge in sales has signaled the start of a rebound, this downturn is unlike any in recent times and it’s premature to call a recovery, said Barry Merchant, senior housing policy analyst at the Virginia Housing Development Authority.

The encouraging signs have been offset by more troublesome ones, he said. After tapering off for a few months, foreclosures in Northern Virginia are starting to creep up again and may keep climbing now that several lenders have lifted foreclosure moratoriums.

Meanwhile, the year-over-year sales increases of the past few months are petering out in some Virginia suburbs, suggesting that interest in the fire-sale prices may have peaked, Merchant said. In April, Loudoun sales declined 12.5 percent from a year earlier.

“If sales are not increasing and foreclosures are on the uptick, then the question is: ‘Is there another shoe to fall?’ ” Merchant said. “Maybe what we were hoping was the bottom was just a bump on the way down.”

The shrinking supply of homes for sale may not be a sign of much, either. As of April, if sales continued at the same pace, the Washington region would have had a 7.7-month supply of homes. That’s down from 10.9 months at the same time last year but still worse than the five- to six-month supply found in a healthy market, the Delta report said. This region had But it may be that individual sellers are pulling their homes off the market, refusing to compete with foreclosure prices.

“I can’t tell you how many listing appointments my team scheduled only to have the client say: ‘You know what, we’re just going to just stay put and hold out on selling for a while,” said Melissa Stewart, a Century 21 real estate agent who works in Fredericksburg. “We’ve had probably eight of those in the past month and a half.”

The Bloomers did not have that luxury. When they bought their Silver Spring house, they thought they would make enough money when they sold it to buy another home and to help pay off their son’s college loans. Now, they are hunting for a rental in Chicago.

Source: The Washington Post.

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Millions Of Homeowners Upside Down | Real Estate Short Sale Training Popularity: 1% [?]

Underwater Homes

Great artcile from WSJ.com

The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration’s efforts to stabilize the housing market.

The increase in the number of such “underwater” borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates.

For instance, fewer will qualify to take advantage of a key component of the Obama administration’s plan to stabilize the housing market. Under the plan, announced in February, as many as five million homeowners whose loans are owned or guaranteed by government-controlled mortgage giants Fannie Mae and Freddie Mac can refinance their mortgages, but only if the mortgage loan is a maximum of 105% of the home’s value.

Government officials are considering an increase in that limit. “It’s a question that we’re looking at,” said James Lockhart, director of the Federal Housing Finance Agency, which regulates Fannie and Freddie.

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Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter.

“What’s going on here is that you don’t have any markets that have turned around and you have new markets, like Dallas, that have joined the ranks” of communities where home prices have fallen, said Stan Humphries, a Zillow.com vice president.

Borrowers who owe far more than their home is worth may also be less likely to participate in another part of the government’s housing plan, which provides incentives for mortgage companies to modify loans to make payments more affordable. Thomas Lawler, an independent housing economist, said borrowers who owe 30% more than their homes are worth are far more likely to walk away from their property than those who owe just 5% or 10% more and expect prices to rebound. More than one in 10 borrowers with a mortgage owed 110% or more of their home’s value at the end of last year, according to First American CoreLogic.

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There are some recent indications that the housing market could be beginning to stabilize. The National Association of Realtors pending home-sales index, for instance, increased 3.2% in March.

Just how many borrowers are underwater is a matter of some dispute, with the answer depending in part on assumptions regarding home values and mortgage debt outstanding. Variations in home-price estimates can make a major difference in the number of borrowers who are underwater. In addition, borrowers who are already in the foreclosure process may be counted as being underwater if the title to their property hasn’t changed hands.

Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, said underwater estimates can be too high if they use price data that includes a large number of foreclosures. Foreclosed homes tend to sell at a discount, he said, making it appear that prices have fallen more than they actually have.

Moody’s Economy.com estimates that of 78.2 million owner-occupied single-family homes, 14.8 million borrowers, or 19%, owed more than their homes were worth at the end of the first quarter, up from 13.6 million at the end of last year.

Part of the reason Zillow’s numbers are higher may be that it looks at mortgage debt taken out at the time the home was purchased and doesn’t adjust for any payments since made toward the outstanding mortgage balance. It also assumes that borrowers who took out home-equity lines of credit at the time of purchase have fully tapped the amount they can borrow. That approach can overstate the portion of borrowers who are underwater, Mr. Zandi said.

Mr. Humphries of Zillow calls his methodology conservative and said Zillow’s use of pricing for individual homes provides a better measure of home valuations than Mr. Zandi’s approach, which relies on market-level estimates of home values. He adds that Zillow doesn’t include foreclosures in its pricing models.

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Is The American Dream Of Homeownership Being Lost Forever? Popularity: 1% [?]

HREU Students and Future students…we strive to bring you the real estate related news stories that could impact your real estate business.

There is a growing national backlash towards housing. It appears that the mortgage interest deduction is on the new Presidents chopping block..

whats next?

Read this article and let me know what you think:

Kai Ryssdal: So you grow up, get a good job, marry, you have a couple of kids, and buy a house. It’s the American dream, right? But a lot people got in trouble chasing that last part and helped take the economy down with them. In today’s installment of Taking Stock, our series of occasional conversations with people who can give us the longer view of our economic situation, Columbia University economist Edmund Phelps and American attitudes toward home ownership. Phelps says that dream of owning a house has been fueled, in large part, by the government.

EDMUND PHELPS: Democrats and Republicans have been very keen to make home ownership almost a national purpose. President Clinton got through Congress a 1997 act to force mortgage lenders to relax the conditions on loans for low-income people. And then there were tax breaks on capital gains and houses in 1998. But I have to say that it isn’t just public policy. The banks, which used to have something to do with business lending, sorta of lost their expertise in that area, and they began to focus all their lending efforts on residential mortgages and other soft targets.

Ryssdal: Let me ask you this, though. Because if the government gets rid of the home-mortgage interest deduction, I for one will be extremely annoyed, and so will the 70 percent of Americans who own their own homes. I mean, it would be a sea change in the way we look at homes in this country.

PHELPS: Yes, it would be. But to me it makes a lot of sense. Because, look, this is a very funny kind of asset in which the owner of the asset gets the services of the asset — the shelter and the comforts and so forth that the asset provides — and at the same time, as if the owner was paying income tax on those services, the owner gets to deduct the mortgage costs.

Ryssdal: Is that a bad thing?

PHELPS: Yeah, to me that is quite crazy. There are only two logical ways to go: one is to deny mortgage-interest deductibility because no tax is being paid on the benefits, or start taxing the benefits.

Ryssdal: You’re a renter, aren’t you?

PHELPS: I am a renter, you caught me. But that’s not why I have these positions. It just happens that I’m a renter.

Ryssdal: Well, when you live in New York City it can be tough to own, right?

PHELPS: Lots of us here in New York City are renters, yes. We’re a very strange breed.

Ryssdal: Well, even though you’ve made peace with the idea of renting, for a lot of people it is a dirty word out there. I mean you have to make the rent every single month. You’re just giving this check over to the land lord, and you’re not getting anything out of it. Do me a favor and weigh the pros and cons of renting or not.

PHELPS: If you rent, that’s it. You don’t have to pay any interest to anybody. You don’t have to pay any maintenance costs to anybody. You don’t have to worry about whether the boiler is going to break down. While if you own your own home, you have a hundred aggravations. Maybe the roof will leek while you’re overseas. In strict money terms, there is no reason to think there is a systematic, long-run, sustainable, durable difference between the two.

Ryssdal: Is this home-ownership obsession that we’ve had, has it affected the rest of our economic lives? Does it change the way we save? Does it change the way we spend in other regards?

PHELPS: Of course, while house prices were going up, that became a substitute for saving. People would refinance their homes, take the profit and spend that, hoping that prices would go up again. And then they would do the same thing and spend that. But I do think this home-ownership craze does tie in with a newfound fashion for spending rather than saving. I’m old enough to remember in the 1930s and the 1940s when thrift, frugality was considered an important virtue. In those days we all knew Benjamin Franklin’s aphorism, “A penny saved is a penny earned.” Today, the official doctrine seems to be that a penny spent is a penny earned.

Ryssdal: Do you think professor that there’s a way to change the housing paradigm in this country? That it is the American dream, and if you have the material means, you ought to buy a house.

PHELPS: I’m hoping that the administration and other thought leaders will succeed eventually in bringing the country back to the older idea that the American dream is having a career, getting a job, and getting involved in it, and doing well. That was the core of the good life. That’s what we have to get back to, and get away from this mystique that the most important thing in your life that could ever happen to you is to be a home owner.

Ryssdal: Edmund Phelps at Columbia University. Thanks so much for your time.

PHELPS: You’re welcome. Good to be here.

Ryssdal: Edmund Phelps won the Nobel Prize in economics in 2006. He’s the director of Columbia University’s Center on Capitalism and Society.ç

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National Epidemic Looming….What Will You Do? Popularity: 1% [?]

One of the top questions we from HREU Students is…..’What should I tell my clients to do who are upside down in their homes?’. Obviously, this is the question millions of Americans are starting to ask themselves.

Read this article and share with us what you think….comment on what you would do if you were in this situation or what you are telling your real estate clients.

What you think matters…

LOS ANGELES (Reuters) – Ron Barnard is throwing in the towel. Like a growing number of the 8.3 million American homeowners who owe more on mortgages than their homes are worth, he’s ready to just walk away.

Barnard and others like him are starting to worry market experts and economists, who fret that the growing trend may deal a blow to an economy on its knees while swelling an already ample pool of bad loans.

While others persist in draining savings and running up credit card debt in a last-ditch bid to save their homes, a growing number see no point in making boom-level mortgage payments in a bust market — with no bottom in sight.

“People are hurting,” said Barnard, who includes himself in that group. “They’re scared or they’re angry,”

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In California’s Inland Empire east of Los Angeles, where Barnard lives and sells real estate, median home values have plunged more than 40 percent in the last year as formerly sidelined buyers snapped up foreclosed properties.

Those bank-owned homes moved at fire-sale prices that decimated the value of neighboring homes — many of which are owned by people who have limited “skin in the game” because they put little or no money down at purchase.

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Deflating home prices thus threaten to accelerate a negative feedback loop that has sent prices lower, said economist Ed Leamer, director of the UCLA Anderson Forecast.

“Should the downward spiral in home prices, neighborhood condition and equity deterioration continue, more and more mainstream borrowers are likely to walk away from their homes,” Credit Suisse said in a December report.

Barnard, who already has stopped making payments on five investment properties purchased in 2005, is on the verge of giving up on his own home that is now worth roughly half its $800,000 purchase price.

Others weigh the predictable and relatively short-term foreclosure-related hit to their credit ratings against the diminishing likelihood of breaking even on their investments or even making monthly payments on such severely “underwater” homes.

OBAMA TO THE RESCUE

Market experts say that, while lenders have the right to sue such borrowers for breach of contract, most will not pursue charges against “indigent” individuals unless they abandon mortgage payments for business interests.

Barnard and some financial planners say that, in certain cases, giving up is the only option.

It can take a year or longer for a bank to seize a home once the owner ceases payments. While a foreclosure hurts credit, owners do not have to make mortgage payments as the process unfolds and can use that saved money to start over.

A foreclosure is rarely the best option. Short sales offer the same relief with far less credit damage. Watch the FREE Agent Short Sale Secrets Video Now.

The prolonged U.S. housing slump prompted President Barack Obama to unveil a $275 billion housing rescue plan that aims to arrest a devastating fall in U.S. home prices and help as many as 9 million families stay in their homes, by reducing mortgage payments via refinancing or loan modifications.

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As lawmakers battle over legislation to help homeowners, the finance arm of Barnard’s Home Center Realty is testing a short-pay “refi” program, or short payoff refinance, which seeks to keep people in their homes by writing down mortgage principal and then refinancing the smaller outstanding debt.

But some can’t afford to wait. Take working mother Jullisa Kalish, 39.

As a realtor in the Phoenix area, she rode high on the property boom. But when the market crumbled over the past three years, she wound up her business, went through a divorce and walked away from her five-bedroom home.

Her home value peaked at $674,000 but was recently revalued at $395,000. Saddled with hundreds of thousands of dollars in negative equity, she found a two-bedroom apartment to rent for herself and her two daughters.

“It’s heartbreaking to lose $300,000 worth of equity, over $300,000 of my most valuable asset,” she said. “It will be 10 years before it even gets back to its $600,000 value.”

“It will just take too long to recoup,” she said.

She’s not alone. More than half of Nevada’s mortgage holders now owe more on their mortgages than their homes are worth. Arizona holds second place with 32 percent of homeowners have negative equity, and Florida and California follow with 30 percent each, according to First American CoreLogic, an affiliate of property services firm First American Corp.

TALES OF GLOOM

The total value of U.S. residential properties fell to $19.1 trillion in December 2008 from $21.5 trillion a year earlier. California’s losses came to more $1.2 trillion — roughly half the nationwide decline, the firm said.

“I’m able to keep my head just above water right now,” said Russ Sweet, 61, who is now living with his son and renting out his underwater home in Temecula, California, at a loss after an injury ended his career as an electrical lineman in San Diego.

While he fights to stay afloat, Sweet says some of his neighbors in Temecula — a haven for commuters who work in more expensive coastal cities — already have walked away.

In Arizona, Phoenix electrician Alvaro Palacios, 34, called it quits on the dream home he bought at the top of the market in late 2006 for $172,000.

Palacios stopped making payments after he was laid off in December. He took a part-time job as a supermarket delivery driver to make ends meet and has been waiting for his lender, Countrywide, to foreclose. His two-bedroom home with a large yard recently was revalued at $124,000 by the city.

Until he hears from the bank, Palacios is staying put.

“It is a difficult decision, but I don’t really see any other alternative,” the father of two said. “The house is worth much less than I paid for it, and it is too much of a struggle.”

Realtors, now its your turn…tell us what you think….

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