Jul. 19--Ralph Stover has good credit and a steady job.
But he took out a risky interest-only first mortgage and a second mortgage to buy a new 1,900-square-foot condominium in 2003 with no money down. Now, the 52-year-old Columbus man is scared he could become another casualty in the ongoing housing meltdown.
He paid $170,900 for his three-bedroom, three-bathroom unit near Polaris, but an appraisal he had done in April because he was thinking about refinancing showed it was worth $160,000. Other units are selling for $150,000 or less, he said.
His first mortgage is going to reset to a higher interest rate early next year. That means his monthly payment will more than double and then float every six months based on national interest rates, he said. Locking into a fixed-rate mortgage would be even more expensive, costing him close to half his monthly income plus a hefty down payment and thousands of dollars in up-front points and fees.
He's beginning to think foreclosure might be the best of his bad options.
"My fear is that we haven't seen the bottom of this, and if we don't see the bottom of this for another two years, my home might be worth 120 (thousand dollars)," said Stover, a customer representative with a company that sells power and cooling equipment for large computer systems. "Then you start wondering: Am I throwing good money after bad?"
Stover represents what could be the next wave of problems for the troubled housing and mortgage industry: homeowners who are current on their payments but starting to question whether it would make financial sense to walk away from their loans.
"We're just really beginning to see households coming forward that are afraid they're going to be behind, but they aren't really behind yet," said Rebecca Hilbert, director of housing counseling for the Columbus Housing Partnership, one of several agencies that Stover turned to for help.
Being unable to refinance because of lost equity "is an increasingly common scenario," she said.
Lost equity means property owners have no skin in the game -- if they ever did. Nationally, the median down payment for first-time buyers was 2 percent in 2007, but 45 percent purchased with no money down, according to a survey by the National Association or Realtors.
Because the purpose of a down payment is to ensure that the lender can recover the full amount of the loan in the case of default, the potential fallout from people in Stover's situation could be "a sucker punch" to the economy, lenders and neighborhoods, said James Newton, chief economic adviser for Commerce National Bank in Columbus.
Walking away "is becoming more and more common," Newton said. "If this were done on a large-scale basis, this would extend the credit crisis into the far future," by dumping more vacant homes into a bloated market and onto banks' balance sheets.
"It would be devastating. It would just take the credit crisis and amplify it that much more."
Homeowners who aren't in default don't qualify for assistance under most programs. Stover contacted several area mortgage-counseling agencies for help, but found he doesn't qualify because he still is making payments, he said.
"All of the agencies said the same thing: If you're not behind on your mortgage, we can't help you," Stover said.
Most loan servicers and government agencies require "a proven need" before they will help. That means being in default, said Rich Call of Consumer Credit Counseling Services in Columbus.
"We see it quite often," Call said. "It's frustrating. There are a lot of people in that gray area, a lot of people."
A common thread among these homeowners is that they purchased exotic mortgages rather than the traditional, fixed-rate products.
"It's the people with interest-only and (adjustable-rate mortgages) who are really having a problem," said Kevin O'Brien, a Columbus lawyer who represents banks in foreclosure cases. "Some of these people just get pushed off the financial cliff, and then you're done."
Homeowners who are in default can qualify for up to $5,000 or three months of mortgage payments -- whichever is less -- under a state-financed program, but only if they meet certain income requirements, said Paul Haggard, director of resource development with the Columbus Housing Partnership.
But "they actually have to demonstrate that their budget will work," Haggard said. "For example, they can't have a huge hole in their income and have an awful lot of expenses."
That's not going to help Stover out of his jam because his condo has lost so much value, Stover said. Until last year, the price decline affecting him hadn't happened in recent history.
Before 2007, the median condo sale price declined only twice in Franklin County in the past 20 years. The biggest of those falls was a 2.2 percent slide in 1997, county records of nonforeclosure "market sales" show.
But in 2007, the median condo price plunged 8.5 percent.
Single-family house prices peaked in 2005. By the end of last year, the median house price had dropped about 5 percentage points.
"If things continue to go the way they seem to be going, it's going to be unaffordable," Stover said. "I'm just not going to make it."
Read other stories in the " Borrowed Time " series.
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