RPT-FEATURE-Owners skulking away from 'underwater' US homes
LOS ANGELES, March 18 (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,"
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.
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.
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. Continued...
