Share|

NAR released its latest pending home sales index figure last week and for the second month in a row the index is up. But more than that, the index has broken 100. This is significant because the only time since the housing boom collapsed that the index has broken 100 is when the home owner tax credit was in effect. The fact that the index has returned to that level a year since the credit has been in effect means the housing market is strengthening completely on its own, without any stimulus.

NAR Chief Economist Lawrence Yun is upbeat about 2012 because in a number of areas indicators are pointing upward. Not only are home sales up but housing starts are up and home prices are stabilizing in many markets and heading up in some. In areas where they’re still down, the declines aren’t that great. More fundamentally, broader U.S. economic signs are looking positive, including the all-important jobs picture. About 100,000 job are being created a month, and that could rise to 150,000—still not a quick enough pace to get us back to where we were before the downturn but the headwinds are in the right direction.

In the video, Yun talks about what the latest figures mean.

Robert Freedman

Website -

Their stories start with a mid-decade home purchase and turn sharply as they simply walk away from those homes and the mortgages that accompany them. What was supposed to happen next was that their financial lives would crash and burn for years.

Or so the dire warnings went. In reality, both men said, walking away turned out to be the best financial decision they made.

In 2005, Mr. Wittenberg, 42, was working in the pharmaceutical industry in Boulder, Colo., when his employer told him he would be relocated to Southern California. It was two years to the day since he had bought a house, and he had no trouble selling it.

When he got to Agoura Hills, north of Los Angeles, Mr. Wittenberg said, he could not believe the pressure to buy another home. “Everybody was making tons of money,” he said. “My company had a relocation expert who said, ‘I’m going to have to insist that you buy property.’ My only hesitation was it seemed like prices were inflated. Little one-bedroom condos were half a million dollars.”

Mr. Wittenberg bought a two-story, 1,300-square-foot condominium for $450,000 in April 2006, putting 20 percent down on a 30-year fixed mortgage with Wells Fargo. And the bank promptly offered him a line of credit, he said: “They were handing mortgages out like candy, and I was able to borrow from the house on Day 1 of signing the loan.” A Wells Fargo mortgage spokeswoman, Vickee Adams, confirmed last week that Mr. Wittenberg had been a customer but said that because of confidentiality laws, the bank could not release any additional information.

A year and a half after getting his mortgage, he was laid off, along with 3,300 co-workers. But he found a new job almost immediately, with a renewable-energy company. It meant yet another relocation, to San Francisco. So he turned the condo into a rental and headed north.

But Mr. Wittenberg found himself agreeing to lower and lower rents, eventually resulting in a monthly shortfall of $1,200 between the rental income and his mortgage payment. By 2009, comparable homes in the area were selling for $210,000, and he still owed more than $300,000. He tried for a year and a half to get the bank to modify his loan, he said, to no avail. So with the help of YouWalkAway.com, he decided to stop paying. YouWalkAway.com is a company that sprang up in 2007 to help homeowners through the foreclosure process, specifically what is called a strategic default. In that instance, even if you can afford to make mortgage payments, you stop paying to force the bank into foreclosing.

The company charges clients an enrollment fee of $199 to $395, and monthly membership fees ranging from $29.95 to $99.95, depending on which assistance plan a homeowner chooses. Then it essentially coaches clients through the process of walking away from their mortgages, helps them figure out which threatening letters to pay attention to and which to ignore and provides access to lawyers versed in each state’s property laws.

As YouWalkAway.com points out in its materials, there is usually no paperwork or response required from homeowners: they should track what documents the bank sends, but other than that, the process is fairly simple. “We looked at how much my home was under water, how much I’d lost thus far and how much I would continue to lose until I started to break even,” he said. “And that could be 20 years away. It was a no-brainer.”

YouWalkAway.com’s chief executive, Jon Maddux, said that was how it should be — a no-brainer — for hundreds of thousands of people who were underwater on their mortgages.

“I think as more and more people know someone that’s done it, they know that, O.K., these people have moved on, they kind of pushed the reset button, and they’re starting over,” he said.

For many Americans, a mortgage is about more than money. It’s a contract that should not be broken, a debt that should under almost all circumstances be paid. In this context, walking away has been framed as an ethical or moral issue.

But many economists, and legal professionals, say it’s not and is simply a matter of contract law. “If your home is a financial asset, and it’s financially rational to walk away, that’s what you do,” said Nicolas Retsinas of the Joint Center for Housing Studies at Harvard.

Mr. Maddux of YouWalkAway.com said his site had helped more than 7,000 homeowners walk away and that, for most of them, a change in their all-important credit score was the biggest downside.

Among the company’s clients, the average score drops 100 points, he said. Fair Isaac, which provides the industry-standard FICO credit score, released a study this year showing similar results.

But if someone’s original score is on the high end, say a 780, that person will take a bigger hit (150 points on average) in a foreclosure or short sale than someone who has a lower score of 680 or 720 to begin with.

The bigger surprise, according to YouWalkAway.com, is that many clients are finding their scores begin to recover within the first few months of a foreclosure’s becoming final. Mr. Wittenberg said he knew the decision to walk away could spell doom for his score, which was in the low-to-mid 700s, and he didn’t know what other financial complications might arise.

“Am I going to have to pay this back? What are these banks capable of doing to me? Buying a house again? Out of the question,” he said. “So here I am, upper middle class, I have two degrees, and I’m stuck. Just because I wanted to end the hemorrhaging.”

The impact so far? There hasn’t been any. At least for him.

Mr. Wittenberg lives in his girlfriend’s house in Walnut Creek, so he didn’t have to worry about a landlord checking his credit. He has a job he enjoys. And he said he was done with debt forever. He doesn’t have any credit cards. His car is paid off. “I live in a cash world, and I want to keep it that way,” he said.

He hasn’t checked his FICO score and doesn’t want or intend to. He shredded every last piece of paperwork from his mortgage and foreclosure.

That’s not to say he has not paid a price, though. He lost his entire down payment and drained a significant portion of his savings account to make up for the monthly rental shortfall.

Mr. Wittenberg said he never planned to walk away from his debts and if the bank had lowered his interest rate by a percentage point or two, he could have continued to rent it out.

In the end, his financial stability, both short term and long term — it would take up to 20 years to break even on the home — trumped any ethical or moral questions he had about honoring his contract with the bank.

What saddens Mr. Wittenberg, he said, is the loss of a home. “I did a lot of work on it, did it all myself, and it was nice,” he said. “But it’s O.K. I’ve moved on.”

He did note that the lack of permanence in the job market made owning a home for any length of time more difficult.

“It’s not like our parents, where they worked at the same place for 40 years,” he said. “So when you own a house, it’s a huge burden. It’s almost like renting is peace of mind.”

•

SIX hundred miles north, in the rural community of Wilsonville, Ore., Bill Sawyer, 50, sat at a desk just off the kitchen in his apartment in a multiunit complex near the I-5 freeway, about 17 miles south of Portland.

Mr. Sawyer, who works as an operations and policy analyst for a state government agency, said a couple of years ago, his credit score was in the low 700s. That’s about average on the Fair Isaac scale, which tops out at 850.

He knows his score has gone down, because he stopped paying the mortgage on his former residence, a small town house in nearby West Linn, more than a year ago. But he has no idea how much. He bought the town house in 2000 for $138,000, with a loan from the Federal Housing Administration and a small down payment. Mr. Sawyer was a single father to Vanessa, who was 12 at the time, and Daniel, who was 11.

Over the next few years, the town house’s appraised value grew to $256,000. The mortgage holder, Wells Fargo, approved two cash-out refinancings, and Mr. Sawyer said he used that money to pay down other debts.

“They just crunched the numbers like a car salesman might, and, you know, you sign the dotted line,” he said.

Then in 2007, his son, then 18, was killed, along with a friend, in a head-on collision with a truck.

Aside from the emotional and psychological devastation, the accident sent Mr. Sawyer into a financial tailspin. Insurance coverage was minimal, he said, and he was billed by the towing company and the volunteer fire department that responded to the accident.

“There were financial hardships as a result of funeral expenses and so forth,” he said in a low voice. “That started a chain reaction. A maxed-out credit card and line of credit. When you have a limited income, and you make minimum payments, well, that debt just keeps going.”

Within a year, the housing market collapsed. Similar town houses started selling for $180,000, and with the equity he had taken out over the years, he owed more on the mortgage than his home was worth. He said he spent months trying to negotiate with the bank for a loan modification. When he was unsuccessful, he abandoned the property in March of this year, with the help of YouWalkAway.

Mr. Sawyer had not wanted to check what that had done to his credit scores, but he did. “Oh, boy,” he said, with a small, uncomfortable chuckle, as he waited for numbers to pop up on his laptop’s screen.

“Oh gosh. Never has it been that low. TransUnion 535. Equifax 520. Pretty much start over from the bottom of the barrel now.”

It’s not the bottom of the barrel, but it’s close, and it was made worse by a bankruptcy filing over the summer. The resulting damage to his credit history is what Mr. Sawyer worried about most.

He has what he thinks is a stable job, he said, and he made sure to secure his current apartment before leaving his other property, in case a low score scared away potential landlords. But if something happened with his job, and he had to move, he said his decision to walk away could make everything more difficult.

A future landlord could decide not to rent to him. Insurance companies could decide to raise his rates.

One thing Mr. Sawyer and Mr. Wittenberg do not have to worry about is banks coming after them for the mortgage debt they left behind. California and Oregon are nonrecourse states, which means that lenders cannot take homeowners to court to get that money back. Many other states — including New York, New Jersey and Connecticut, as well as Nevada, a foreclosure hub — do allow recourse. In those cases, walking away can exact a much higher price.

For now, Mr. Sawyer said he felt relief. “We were happy in that home,” he said. “But I didn’t see any other way to resolve this matter without pretty much putting money down the drain for years to come.”

And the financial recovery appears to have started already. Mr. Sawyer was approved last month for a credit card through Capital One. It has a $300 limit and a 22 percent interest rate, but he said he planned to use it and pay it off each month. “I’m going to live within my means and kind of start from scratch,” he said.

Devin Maverick Robins contributed reporting.