• Underwater mortgages: One homeowner's story of hardship and struggle



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Marie, a Worcester home owner who got caught by the downturn in the housing market during the Great Recession, has fought hard to keep her house and stay current on her mortgage payments. T&G Staff/Christine Hochkeppel
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  By Ming Zhou
  Special to the Telegram & Gazette

  
  Posted Jul. 10, 2016 at 6:00 AM
  
  
  

  WORCESTER — Marie paid $250,000 for her house in Worcester in 2007, just before housing prices in city and the rest of the country crashed. Within a year, in 2008, her house, she said, was worth $100,000 less than what she had paid for it.

  In the language of banking, her mortgage was underwater, meaning her mortgage was bigger than the value of the house.

  Like many other residents in the Worcester area, Marie had to make a choice: Would she continue paying her mortgage and hold on to the house despite its fall in value? Or, would she stop making payments and let the house go in a foreclosure?

  She decided to keep the house and continue paying.

  The Warren Group, which compiles statistics on the New England real estate market, estimated that of the 24,259 mortgages in the city of Worcester, nearly one in three — a total of 7,741, or 32 percent — are likely underwater.

  Marie, who is college-educated and works in the financial services industry, asked that her full name not be published because she is embarrassed to have caught herself in this financial bind. The problem with underwater mortgages are that, even if she were to sell her house, the sale price would not yield enough money to pay off the mortgage. The house would belong to someone else, but she would continue to carry some of the debt from her original purchase of it.
  

  Marie bought her house on Pleasant Street in February 2007. It was appraised at approximately $270,000, and she purchased it for $250,000. “At the time, this was an amazing deal, and I was thrilled to be getting it for such a good price,” she said.

  Her great investment soured, as the housing market almost immediately tanked, and the value of her house went spiraling down.

  The price of real estate in Worcester fell quickly after 2008. According to the report Local Market Update, conducted by the Massachusetts Association of Realtors, the median price of single-family properties dropped more than 30 percent, from around $230,000 in 2008 to $160,000 in 2012. The values remained flat for some time and then began to grow slightly as of March, according to MAR's Local Market Update.

  Marie had taken out two mortgages to buy the home. On the first mortgage, she made a $15,000 down payment and financed $200,000 at 6.5 percent with a monthly payment of $1,550. In the second mortgage, for $35,000, she paid 8.5 percent with a balloon payment $15,000 after 15 years.

  Marie explained that her bank recommended that she take out two mortgages when she bought the house. “They said it would give me a cheaper monthly payment,” she said.

  After paying her mortgages for three years, she decided in 2011 to refinance the two mortgages because the interest rate went down sharply after 2008. She was able to lower her monthly payments through refinancing.

  Bill Nickerson, senior loan officer from PHH Home Loans, a New Jersey-based mortgage brokerage firm affiliated with Coldwell Banker Residential Brokerage with a local office in Acton, also suggests refinancing mortgages when borrowers recognize their mortgages are underwater.

  “If there is an underwater, you will advise them to keep the house and work with them to refinance first,” said Mr. Nickerson. “If not, they will try to sell it, and the bank would be allowed to make a short sale. If that does not help, the property will unfortunately go to foreclosure.”

  A short sale is for less than the amount owed on the mortgage. The owner absorbs a loss, but avoids foreclosure and a bad credit history.

  Before things worsened, Marie said, she tried to refinance her mortgages several times. The process was full of tears and struggles. She found it difficult to refinance a mortgage that was underwater.

  Making matters worse, Marie was divorced in 2011 and her income fell to half; she was a single mother in a four-person household. Marie decided to call a lawyer to seek bankruptcy.

  “The conversation made me extremely uncomfortable. How could I go into a courtroom and tell a judge that I refused to follow through on my commitment to pay this debt?” Marie said. “The divorce and the housing crisis were not the faults of the court.”

  She said she was determined to continue paying the mortgages. To accumulate enough money for the payments, she said, she had lived for two years and three months without lunch. She said she felt embarrassed. Usually, she would pretend not to be hungry, and she thought her children were too young to notice the white lie. Her 10-year-old daughter, however, eventually figured out what her mother was doing.

  “One time, we were having lunch at Subway during a long car trip. I ordered food for the kids, and not for myself. My oldest daughter pretended she was full and insisted that I eat her sandwich. I could tell by the look on her face that she had realized all this time that I was depriving myself of lunch. She obviously had no idea why, which makes it even more upsetting,” Marie said, describing her daughter’s expression as part sad, part scared.

  Her daughter asked afterward, “But Mommy, you have a lot of knowledge and two good jobs. That still isn't enough?”

  Marie found another job, teaching economics at a local private college at night, for the extra money. She also quit smoking cigarettes to save money.

  Eventually, as she paid down the mortgages, she reached approval from the mortgage company to refinance her mortgages in 2013, and now she pays about $1,200 per month, instead of $1,500.

  Unlike Marie, a number of underwater mortgage holders in Worcester choose to let their properties go into foreclosure.

  Real estate broker Tracy Barber, from The Duffy Home Selling Team, with an office on Chandler Street in Worcester, said he regularly handles 25 to 30 underwater properties on a yearly basis that have gone through the auction or selling process.