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Many owe more than what their homes are worth

Mortgage broker Mike Kelly, in front of his home in Seminole, understands what it’s like for his clients to be upside down on their mortgages. After dabbling in flipping, he is too.

CHRIS ZUPPA | Times

Mortgage broker Mike Kelly, in front of his home in Seminole, understands what it’s like for his clients to be upside down on their mortgages. After dabbling in flipping, he is too.

Nearly half of the people who bought homes in the Tampa Bay area in the last five years owe more than their home is worth.

The story is even worse for those who bought at the market's peak in 2006. More than 70 percent of those buyers in Tampa and St. Petersburg now have negative equity, according to analysis by Zillow.com, a real estate valuation Web site.

"We don't have anything left," said Darryl Outlaw, 46, who estimates that he and his wife owe at least $50,000 more than their Dover home is worth.

"I never thought I'd be in this position. We've always made good financial decisions. My mortgage is at 5 percent, and we've never lived beyond our means. I just can't find work. Our only options now are to sell or walk away."

Pasco County — where new subdivisions were sprouting like grass during the good years — was especially hard hit. Roughly 60 percent of homes purchased in those years are worth less than the mortgages, according to Zillow, which relies on public mortgages and property records.

"We get calls from people who are trying to sell their home and haven't checked the value recently," said Rachel Nash, 56, a Zephyrhills office manager and Realtor. "Sometimes we're giving pretty bad news."

• • •

All this negative equity has a negative effect on the economy, as debt-laden homeowners curtail their spending.

It also lessens the housing market's ability to rebound because people can't sell their homes.

Sen. John McCain addressed the crisis last week when he proposed using federal money to help desperate homeowners. The McCain "Resurgence Plan" would use $300-billion in federal money to purchase current mortgages and replace them with lower, fixed-rate mortgages that the campaign says would help people like the Outlaws.

But some, like the Outlaws, remain leery of government help.

"Trickle-down economics does not work," Darryl Outlaw said. "That's why I'm so upset about this $700-billion bailout. It doesn't help me at all. I didn't even qualify for help under the economic stimulus package a few months back because I don't have a subprime mortgage."

The Outlaws' downward spiral started a few years ago when Darryl lost his information technology job. Then a construction company he opened went under. He found work at another construction company but soon was laid off. His difficult search for a job took him all the way to Athens, Ga., where he moved earlier this year to be a Web developer at the University of Georgia. His wife stayed behind.

He now makes $39,000 a year, compared to the $150,000 he used to make.

Dena, 55, works as a caseworker, but her $25,000 salary only makes a dent in their debt.

The couple have burned through their savings and a second mortgage they took out to pay bills. They figure it's only a matter of time before they lose their home.

• • •

Mike Kelly has a front-row seat to the crisis. As a mortgage broker, it's his job to get people the money they need to buy houses.

These days, Kelly spends most of his time trying to get people money so they can keep their houses. He understands their plight; he also owes more on his Seminole home than it's worth.

"We're way upside down," said Kelly, 44. "But not quite as bad as others."

He blames his situation on greed.

Kelly, a husband and father of two, bought his home in 2002. Two years later, the 3-bedroom, 2-bath with a pool was appraised at $310,000, he said. Its current market value is $240,000, about $50,000 less than he owes.

A few years ago, he and a partner decided to play the flipping game using his home equity. The pair did well with a couple of properties. But the last one —- a condo conversion at Lake Seminole — bombed. They got $105,000 less than they paid.

But Kelly said he's not giving up yet.

"I'm not walking away," he said. "I'm not going anywhere."

In Pasco, Nash says she and other Realtors have found themselves taking on the role of credit counselor.

"We have worked with people to tell them how to work with the bank to renegotiate for lower interest rates or that type of thing, to lower their payment," she said.

For some folks, short sales are often the best option, Nash said.

"We have quite a few that are in the works right now. … It's much harder when someone has a second mortgage also on the property," she said.

That's the situation the Outlaws find themselves in.

A few days ago they posted their 3,500-square-foot home in a short sale ad on craigslist.com.

They bought the five-bedroom home in 2004 for $280,000. Because of the second mortgage, they owe $378,000.

They're hoping to get enough to pay off the note.

"We might get $320,000," he said. "Maybe."

Staff writer Helen Anne Travis contributed to this report. Nicole Hutcheson can be reached at nhutcheson@sptimes.com or (727) 893-8828, Chandra Broadwater can be reached at cbroadwater@sptimes.com or (813) 661-2454.

Options if you have negative equity

What should a homeowner with negative equity do?

It may be tempting to let your home go into foreclosure or try to unload it in a lender-approved short sale, but most experts caution against those actions. Both a foreclosure and a short sale present a 300 point hit to your credit score.

The upside to a short sale is that it you may be approved for another home loan within two years, whereas it takes six years to be approved after a foreclosure. Before making any decisions, you should call your lender.

Among the loan modifications that could be offered:

Repayment plan: You may be able to get an agreement to resume making your regular monthly payments, plus a portion of the past due payments each month, until you are caught up.

Forbearance: Your lender may allow you to reduce or suspend payments for a short time and then agree to another option to bring your loan current, either by adding the balance to the principal or paying a portion of the past due balance each month.

Mortgage modification: If you can make payments on your loan but don't have enough money to bring your account current or you can't afford your current payment, your lender may be able to change the terms of your original loan by adding the missed payments to the existing loan balance, changing the interest rate or extending the number of years you have to repay.

Source: City of St. Petersburg and msnmoney.com.

Many owe more than what their homes are worth 10/14/08 [Last modified: Friday, October 17, 2008 11:31am]

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