California man losing nine homes in mortgage mess

By Dan Whitcomb

LOS ANGELES (Reuters) - A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market.

Shawn Forgaard, a 37-year-old software company project manager, bought one home for his family to live in and nine more as investments. He stands to lose all the investment houses in the mortgage meltdown but says he has come away wiser from the experience.

"Everyone stumbles. I'm not going to hide or run or live in denial, or with regrets," Forgaard told Reuters in an interview. "On the surface it looks like total devastation but it's just the opposite. I'm confident our lives will be much, much richer as a result."

Forgaard bought a house in Santa Cruz, about 60 miles (100 km) south of San Francisco, in 2000. Four years later, using $800,000 in stock options, he began snapping up investment properties, putting 10 percent to 40 percent down on negative amortization loans -- in which payments do not cover the interest so that a borrower's balance grows over time.

It was those "neg-am" loans, which include triggers causing payments to balloon if the debt reaches a certain percentage of the original balance, that would come back to haunt him.

"I knew I was sitting on time bombs," Forgaard said. "I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance.

"I didn't anticipate a downturn of epic proportions such that home values are 40 percent less than they were," he said.

The mortgage market has melted down in the past two years in a crisis that began in the subprime sector and has left millions of Americans facing the possibility of foreclosure on their homes.