David Craig knows how draining it can be to make payments on a home that is worth less than the mortgage debt on it.
The Brighton-area resident and his wife have struggled the past two years to carry not one, but two, homes valued at less than what’s owed on them, a situation known as being “underwater.”
“You hear about how bad the economy is,” said Craig, a truck driver. “Until my housing situation stabilizes, there is no way I’m going to spend a lot of money on the house.”
Nearly a third of homeowners who have purchased a home in the metro Denver area in the past five years owe more on them than what they would sell for, estimates the real estate website . And because that number doesn’t include home equity lines of credit, it probably underestimates the severity of the problem.
Denver ranked 41st out of 163 metro markets for its percentage of homes with negative equity, said . spokeswoman Amy Bohutinski. Of the 425,000 homes purchased in the past five years in the metro area, 144,000 are underwater.
The problem is a result of overbuilding in a superheated housing market as easy mortgage money was extended, beginning around 2003, to people unable to repay over the long term. Subprime mortgages, in particular, have gone bad in massive numbers over the past two years, tanking the housing, credit and stock markets and throwing the country into a deep recession.
Metro Denver, including Arapahoe, Adams, Jefferson, Douglas, Denver and Broomfield counties, didn’t experience the huge run-up in home values seen in areas such as Florida, Nevada and California this decade, resulting in smaller price declines.
. estimates metro Denver home values are down on average 7.5 percent from their peak value during the second quarter of 2007, Bohutinski said.
Had recent buyers followed the practice of past generations and put 20 percent or even 10 percent down, they might be able to ride out that kind of downturn.
But low or no down payments were common until last year, leaving recent buyers in a much tougher spot than the 30 percent of homeowners, mostly older and more fiscally conservative, who have paid off their mortgages.
The most underwater ZIP code in the metro area is 80018 in Aurora, where nearly 65 percent of homes bought in the past five years have negative equity.
There are another 14 ZIP codes, mostly in Adams County, where half or more of recent purchases are underwater.
Trapped at home
Declining home values, the need to pay a 5 percent to 6 percent real estate commission to sell and covering the concessions that buyers are now demanding have left many sellers trapped with no easy way out, said Jim Spray, a licensed Arvada mortgage broker who specializes in difficult home financing situations.
“This housing market is underwater in a way we have never seen, not even in the 1980s and 1960s,” Spray said.
Not only must home sellers come up with thousands of dollars to close a sale, they must then come up with the 20 percent down payments conventional lenders are now demanding to buy the next home.
Craig said his troubles began when a homebuilder persuaded him and his wife to buy a new home in an Adams County housing development along Colorado 7 before they had sold their Thornton home.
The builder connected him with a real estate agent who offered a guaranteed buyout for his original home. He said the builder assured him that a buyer was lined up and that financing was available.
Craig closed on the new home in October 2006. The real estate agent collected his commission but failed to produce a buyer and then reneged on his guarantee, Craig said.
Craig and his wife managed to carry two sets of mortgages for a few months before they stopped making payments on the original home.
A foreclosure would have been an act of mercy, but the lender, Countrywide, kept the couple in limbo for nearly two years, he said.
Right before a foreclosure sale was set to go through, Countrywide accepted a “short” sale of the home for $245,000 to settle the $270,000 mortgage.
Countrywide spokesman Rick Simon said pursuing a foreclosure is a last resort.
“At a time when a short sale is still a viable option, and it’s supported by the borrower’s desire of getting out from under the home, generally we don’t pursue a foreclosure,” Simon said. “In this case, it sounds like it worked out to where there was an acceptable short-sale offer, which from the borrower’s standpoint puts less of a mark on their credit record over the long term than a foreclosure would have.”
But the couple isn’t out of trouble yet. Payments on their current mortgage adjusted higher this month by more than $800 to an amount they can’t afford.
Craig estimates that the newer home, which must compete with new ones still being built, is worth $410,000 but has $450,000 owed on it.
Many in the same boat
About 41 percent of people — like the Craigs — who bought homes in 2006 in metro Denver are underwater on their mortgages, . estimates.
Spray said there are two paths out from negative equity for those who can’t wait for a market recovery.
The first is a short sale, and the second is a loan modification, where a lender agrees to rework the terms of a loan so an owner can stay in the property.
“If the loan modification doesn’t work, we are going to have to look for somewhere else,” Craig said.
Lenders, who at one time only grudgingly adjusted interest rates lower or extended the length of troubled mortgages, now willingly lop off principal and make other changes, Spray said.
That has created a ripe market from reputable and questionable players offering loan modification assistance, Spray said.
The Colorado Division of Real Estate warned loan modifiers this month that they must be licensed as mortgage brokers with the state.
Some loan modifiers are taking thousands of dollars of fees upfront from desperate homeowners and not getting the loans modified, said division spokesman Zachary Urban.
Others are telling homeowners to send them their mortgage payments, which they pocket, or are advising them to miss payments, he said.
Staff writer Andy Vuong contributed to this report.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
Top 10 cities for underwater homes
Percentage of homes bought in the last five years that have negative equity:
1. Vallejo-Fairfield, Calif., 71.9 percent
2. Stockton, Calif., 70.5 percent
3. Merced, Calif., 68.3 percent
4. Modesto, Calif., 65.3 percent
5. Yuba City, Calif., 62.7 percent
6. Port St. Lucie-Fort Pierce, Fla., 58.3 percent
7. Riverside-San Bernardino-Ontario, Calif., 58.2 percent
8. Salinas, Calif., 57.8 percent
9. Las Vegas-Paradise, Nev. 54.6 percent
10. Detroit-Warren-Livonia, Mich., 54 percent
Source:
