| LOS ANGELES
LOS ANGELES 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.
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."
(Additional Reporting by Tim Gaynor in Phoenix, editing by Edwin Chan)