NEW YORK (By
Ben Tracy, CBS)
February
8, 2010 —
The American Dream is now a
nightmare for many of the 75 million
Americans who own a home.
The housing report card is ugly. In the
past two years, the housing market has
lost an estimated $4.9 trillion dollars,
as 59 million homes have declined in
value.
Nearly 1 in 4 homeowners — 10.7 million
households nationwide — are underwater
on their mortgages. They owe more than
their home is now worth.
The housing market is so bad in
California, that a bank demolished 16
nearly completed homes — because it was
cheaper to knock them down, than to
finish them.
Home building across the country is
almost non-existent. In 2005, 2 million
housing units were built in this
country. Last year, that number dropped
to nearly a quarter of that.
That's left former boom towns like Las
Vegas with a lot of roads to nowhere, as
builders ran out of money and buyers for
the homes they once planned to build
here.
Then, there's foreclosure. Nationwide,
nearly 6 million households have been
taken back by the bank in just the past
three years — pushing down home values,
and leaving some neighborhoods looking
like warzones.
The Problem
People are still losing their homes,
preventing a housing market recovery.
"Disaster is not too strong a word and
crisis is not too strong a word," said
Michelle Johnson of Consumer Credit
Counseling Services.
All of those risky loans that banks gave
to homeowners are still wreaking havoc.
Jessica and Aaron Jenkins got in way
over their heads when they bought their
5 bedroom dream home in Corona,
California for over $700,000. They paid
$2,800 dollars a month on their
interest-only loan — never touching the
principal.
"It's cheaper than a 30 year fixed,"
Aaron said. "We can afford it so that's
why we did it."
But this year, their loan would reset,
adding $1,100 dollars to their monthly
payment. In the next two years, nearly
361,000 loans will reset nationwide —
increasing mortgage payments by an
average of $1,000 per month.
That's why a record 3 million more
foreclosures are expected in 2010.
"Today, the number one cause of
foreclosure is unemployment," said Pete
Flint of Trulia.com.
Fifteen million Americans are now out of
work.
Twenty-seven-year old C.J. Mueller
bought a house in Phoenix for $210,000.
But then he lost his job. He tried to
get his bank to modify his loan.
Instead, he just got his foreclosure
notice.
"It came to a point where I didn't
really care," he said.
President Obama's mortgage modification
program is supposed to permanently
modify 3-4 million loans by 2012. So
far, they've fixed 66,000. They want
banks to speed up the process.
"Unfortunately it's been lip service and
little action," Flint said. "Until the
administration gets tough on lenders,
we're still going to see huge amounts of
foreclosures."
Banks say they are simply overwhelmed
and some people are beyond help.
"I gave up. I don't care anymore,"
Mueller said. "Take the house."
The Solution
The solution for many is to just walk
away. Some experts say it may be better
to cut your losses and ruin your credit
in the short term, than to pour more
money back into a bad investment.
"I paid $210,000 for the house. The
house is worth $90,000," Mueller said.
"Would you keep the house?"
To keep homeowners from walking away,
credit counselor Michelle Johnson said
banks should permanently convert all
those risky loans into 30-year fixed
mortgages for anyone who can afford the
payments. "It needs to be a long-term
fix. It can't be a band aid which is
what many of these modification programs
seem to be."
Some mortgage firms and a few banks are
going further — actually reducing the
principle on loans.
"To date, it's allowed us to save about
15 percent more homes than if we had not
used it," said William Erbey, CEO of
Ocwen Financial Corporation.
Fixing Sub Prime Mortgages
However, the housing market also needs
buyers to start moving in. Jontue and
Diana Junior just bought a 4 bedroom
home in Las Vegas — thanks to the $8,000
federal tax credit for first time
homebuyers.
"We knew that once we got into the house
with $8,000 if we managed our money
right, we shouldn't lose the house,"
Jontue said.
That incentive has juiced the housing
market. Home sales are up nearly five
percent in the past year. The tax credit
expires in April, and experts say shell
shocked banks need to start lending
again so the market has more buyers.
"Until we have that, we really can't
have a full fledged housing market
recovery," said Rich Sharga, VP of
RealtyTrac.
Yet homebuyers are much more focused on
cost — heeding the warning to never
spend more than 31 percent of pre-tax
pay on housing. For a family making
$75,000 a year, than means not spending
more than $1,900 per month.
Builders are responding with smaller and
more affordable homes. Pulte homes
scrapped their 3 story, 3,300 square
foot home. Now, they sell a 2 story,
2,000 square foot home chopping the
price in half from $400,000 to $200,000.
"The larger homes and the price points
and the square footages we were selling
at just weren't selling like they used
to," said Scott Wright of Pulte Homes.
In Phoenix, Philip Beere is buying up
foreclosed homes, and giving them a
major facelift and energy savings
upgrade to make them more affordable. In
one home, he lowered the annual utility
bill from $2,000 to just $400.
As for the Jenkins family, they'll keep
their home thanks to a loan
modification, but their investment will
likely never may off.
"What I've learned from this is that you
don't need it," Jessica Jenkins said.
"It wasn't worth it."
That's a feeling shared by millions of
Americans now living with regret.
