Sacrificing credit for home loan help

May 5, 2009 4:25:42 PM PDT
Bay Area home prices are falling so far, so fast, that many people owe more on their homes than they are worth. This is making banks less willing to refinance or modify loans and that puts a lot of people at risk of foreclosure.

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Bay Area home prices are down 46 percent compared to this time last year, nearly four times the national average. For one Bay Area man, this spelled double trouble because he made his living selling homes and now he cannot afford to stay in his own.

Mike Short was a home loan officer for a housing developer when he bought his own little home in Pleasanton.

"I have a great view of the hills. You can see it's a beautiful place," he said. "I was thinking it was a good investment at the time obviously, like most people who purchase homes."

That was two years ago. Little did he know that both his job and new home were headed for disaster. Not long after he moved in the housing market crashed, his condo lost 40 percent of its value and he got laid off.

"Sick to my stomach to be honest with you," he said describing his feelings. "Right now I'm on unemployment and my mortgage payments are about $700 more than what I'm making on unemployment right now."

With his savings running out, Short wonders now how much longer he can hang onto his home. So, he did what anyone would do; He asked Bank of America to modify his loan.

He was shocked by their reply.

"They said we can't do anything for you until you default on a few payments," Short recalled. "'So, I need to ruin my credit before I get help?' And, she basically said 'Yeah.'"

Ironically, the bank will not help until he stops paying. But, defaulting would kill Short's last bit of financial leverage, his 800 credit score.

"That's a terrible message to tell people," said consumer credit counselor Rick Harper. "We've been saying as counselors, hold your hand up and say 'I need help now.'"

Harper says it is typical for banks to refuse modification until a customer is deep in trouble.

"They said, 'Get out of the way. I got people that are dying on the vine. I don't have time to deal with you. Call me when you're delinquent,'" he explained.

Short hoped President Obama's housing assistance program could save his home. But, his condo lost too much value to qualify for a refinance and he has no income to qualify for a loan modification.

"I'm trying to do everything I can to stay afloat. I'm doing everything I can," he said. "I just keep looking for this glimmer of hope."

7 on Your Side contacted the lender on Short's behalf.

Bank of America said it "is dedicated to working with homeowners to help them retain their home, provided they have the wherewithal to make reasonable mortgage payments. Unfortunately, in cases of unemployment, it is often difficult to qualify..."

However, the bank contacted Short later and offered to let him pay just one-third of his mortgage for the next three months. He would have to make up the difference later.

Mike says he is not sure he can afford even that.

"I'm depleting my savings to save this place when it might be inevitable that I lose it," he said. "We'll see what happens possibly tomorrow, next day...I don't know. I don't know."

What Bank of America offered is called a "forbearance." It is a temporary reprieve that many banks are offering these days.

Short said he might take Bank of America up on the offer.

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