Crisis In The Housing Market
3:20 pm
Tue June 26, 2012

Sinking Under A $10,000 Monthly Mortgage Payment

Originally published on Wed June 27, 2012 5:50 pm

The nation's housing crisis has touched countless people. Increasingly, the well-off are among them.

Housing counselors around the country say they are seeing more people struggling to keep their million-dollar homes. It's a twist on a familiar story of hardship — but one that involves some very big numbers.

Moving Up, Falling Down

Expensive homes dot the hills overlooking the beaches and boutiques of Laguna Beach, Calif. It's a tony backdrop for an event sponsored by the Orange County Home Ownership Preservation Collaborative, a nonprofit group working to help financially distressed homeowners.

John Jalali and his wife are here, seeking a loan modification on their house. Once valued at over $3 million, it's now worth about $2 million.

The couple never intended to live in the home, Jalali says. Rather, it was built as an investment they hoped to sell. But that was in 2008, the year the market crashed and their income dramatically declined.

To avoid foreclosure, the Jalalis had to sell their other assets — including their old home — and move into the big one.

"We were very happy in our little home," Jalali says. "It was very nice; we were comfortable paying $2,500 a month."

Now, the Jalalis' mortgage is $10,000 per month.

The couple's two grown sons moved in to help pay the mortgage. But the family's combined income still wasn't enough, and they're behind on payments.

'It Ruined Our Life'

Jalali seems jovial by nature, but even when he laughs, he nervously taps a folio of financial documents.

He understands that his story might not meet with much sympathy. "Everybody hears this big, big number, [and] says this guy maybe doesn't need modification. Let's take his home away from him," Jalali says.

He says fighting the banking bureaucracy is emotionally wrenching. His wife scours the Web for potential resources late into the night.

He says the family isn't asking for loan forgiveness — just a forbearance on a portion of the loan, until their income can recover and they can pay off what they owe.

And, Jalali says, he will never again put money at risk.

"No, I never want to make an investment anymore. I just gave up," he says. "I just want to be a simple man. I just don't want to go through all this."

Ultimately, Jalali sums up the entire saga this way: "It ruined our life."

'No Other Choice'

High-value properties are only a small portion of all homes in foreclosure proceedings in the U.S.

But according to research firm RealtyTrac, foreclosure activity on properties worth at least $1 million jumped between 2007 and 2011, from 5,632 homes to just over 33,000.

And it's not just the number of million-dollar homes in foreclosure that has spiked. They also make up a growing percentage of all foreclosure activity — rising to 1.93 percent in 2011 according to RealtyTrac. In 2007, only 0.69 percent of all properties had notices.

Housing counselors around the country have noticed the trend. Several say about half the inquiries they have received in the past year have come from wealthy — or formerly wealthy — homeowners.

"These are the folks that are losing their jobs on Wall Street. These are the folks that live in Scarsdale and Bronxville," says Geoffrey Anderson, executive director of Westchester Residential Opportunities, a housing counseling group that's been fielding calls from wealthy New York suburbs.

"These are the people that own million-dollar homes, who have used up all their life savings — and are now coming to us because they have no other choice," Anderson says.

Difficult To Modify

Superjumbo home loans can be harder to modify than more modest ones. Most exceed the loan-size limit for government-sponsored programs designed to help homeowners refinance.

And some counselors say banks are less likely to modify loans on homes in areas with relatively low rates of unemployment or foreclosure.

Also, with a very big loan, many borrowers can't afford even a modified payment.

On the other hand, banks typically take longer to foreclose on expensive homes. And families with means can often afford to pay lawyers or financial experts for help.

Carolyn Haynes-Thomas, director of housing counseling programs for the Greater Sacramento Urban League in California, expects many more expensive homes to fall into trouble this year, especially in her region.

Sacramento was an expensive market that has since lost a lot of value. About a third of borrowers there chose "option adjustable rate mortgages," also known as Option ARM or pick-a-pay loans. While those loans require low initial payments, they ultimately end up costing borrowers more.

In the Sacramento area, many such loans are due to reset to higher amounts this year. When that happens, Haynes-Thomas predicts, many homeowners will simply stop making payments.

"They're smart, right? Because they were typically high-income-earning, better credit borrowers," Haynes-Thomas says. "[So] we know what's coming. We are going to literally have thousands of strategic defaulters."

And that's just Haynes-Thomas' estimate for Sacramento. Because the loans are for more than the homes are worth, she worries homeowners will have little incentive to stick it out.

"Do I want to stay there now and pay hundreds more per month than somebody living across the street? Probably not," she says.

And, Haynes-Thomas says, homeowners in that situation are unlikely to just pick up and move away. Instead, she expects many people will save up money while their homes move through the foreclosure process.

"You know, let the lender take a year and a half to foreclose, stack my money, right?"

Only then, she says, will they move out, hoping to leave their problems behind.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

AUDIE CORNISH, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.

MELISSA BLOCK, HOST:

And I'm Melissa Block. The housing crisis has touched many people, including, increasingly, the rich. Housing counselors around the country say more people are struggling to keep their million dollar homes.

As NPR's Yuki Noguchi reports, it's a twist on a familiar story of hardship, but with some very different numbers.

YUKI NOGUCHI, BYLINE: Expensive homes dot the hills overlooking the beaches and boutiques of Laguna Beach, California. It's a tony backdrop for an event sponsored by a nonprofit group trying to help financially distressed home owners.

UNIDENTIFIED WOMAN: We ask you to fill all that out so that your counselor can help you and go over your financials.

NOGUCHI: John Jalali and his wife are here seeking a loan modification on their house, once valued at over three million dollars, now worth about two million.

JOHN JALALI: I mean, we really didn't want to be in this position.

NOGUCHI: In fact, Jalali says they never intended to live there. It was built as an investment they hoped to sell, but that was in 2008, the year the market crashed, and their income dramatically declined. They had to sell their other assets, including their old home, and move into the big one in order to avoid foreclosure.

JALALI: We were very happy in our little home. It was very nice. We were comfortable paying $2,500 per month and...

NOGUCHI: And now what is your mortgage payment?

JALALI: Oh, my God, it's $10,000.

NOGUCHI: Their two grown sons moved in to help pay the mortgage. Their combined income still wasn't enough. They're behind on payments. Jalali seems jovial by nature, but even when he laughs, he nervously taps a folio of financial documents. He says he understands his story might not meet with much sympathy.

JALALI: Everybody hears this big, big number and well, this guy doesn't need, maybe, any modification. Let's take his home away from him.

NOGUCHI: Jalali says fighting the banks is bureaucratic and emotionally wrenching. His wife scours the Web for possible resources late into the night. He says they aren't asking for loan forgiveness, just a forbearance on part of the loan until his family's income can recover. He says he will never again put money at risk.

JALALI: No, I never going to make any investment any more. I just gave up.

NOGUCHI: You learned your lesson?

JALALI: Yeah. Just - I want to be a simple man. I just don't want to go through all this. It's ruined our life.

NOGUCHI: It's not just that the number of million dollar homes in foreclosure has spiked. They also make up a larger percentage of homes with foreclosure notices, according to RealtyTrac. Housing counselors around the country told me that in the past year about half of inquiries come from wealthy or formerly wealthy home owners.

Geoffrey Anderson is executive director of Westchester Residential Opportunities, a housing counseling group that's fielding calls from wealthy New York suburbs.

GEOFFREY ANDERSON: These are folks that are losing their jobs on Wall Street. These are folks that live in Scarsdale and Bronxville. These are the folks that own million dollar homes that have used up all their life savings and are now coming to us because there's no other choice.

NOGUCHI: It can be harder to modify a big mortgage. Most exceed the loan size limit for government-sponsored programs designed to help home owners refinance. Some counselors say banks are less likely to modify loans on homes in areas with relatively low rates of unemployment or foreclosure.

Also, with a very big loan, many borrowers can't afford even a modified payment. On the other hand, banks typically take longer to foreclose on expensive homes and families with means can often afford lawyers or financial experts to help.

Carolyn Haynes-Thomas says she expects many more expensive homes to fall into trouble this year, especially in the Sacramento area, where she's director of a housing counseling program.

CAROLYN HAYNES-THOMAS: It's, like, really frightening.

NOGUCHI: Sacramento was an expensive market that lost a lot of value. About a third of borrowers there chose low initial payment loans, most of which are due to reset to higher amounts this year. When that happens, Haynes-Thomas predicts, many home owners will simply stop making payments.

HAYNES-THOMAS: But they are smart. Right? Because, typically, they were higher income earning, better credit borrowers. Right? So we know what's coming. We're going to have literally thousands of strategic defaulters.

NOGUCHI: And that's just in Sacramento because the loans are for more than the homes are worth. Haynes-Thomas worries home owners will have little incentive to stick it out.

HAYNES-THOMAS: Do I want to stay there now and pay, you know, hundreds more per month on a mortgage payment than somebody is across the street? Maybe they're renters. Probably not. So they're - but are they going to move? Are they just going to pick up and - oh, no. You know, let the lender take a year and a half to foreclose, stack my money. Right? And then they're going to move.

NOGUCHI: They'll move, hoping to leave their problems behind. Yuki Noguchi, NPR News. Transcript provided by NPR, Copyright NPR.