Refinance Crisis Costs CA Man Nine Homes

Reuters reports on Shawn Forgaard who has defaulted on nine homes. He expects the banks to foreclose on all of them, sending him into bankruptcy.

He now says it was a mistake to have invested in real estate.

He's a 37-year old software project manager. He snagged one home for his family. The rest? They were investment or speculation.

"Everyone stumbles. I'm not going to hide or run or live in denial, or with regrets," Forgaard told Reuters in an interview. "On the surface it looks like total devastation but it's just the opposite. I'm confident our lives will be much, much richer as a result."

Foorgaard bought homes by putting anywhere from 10 to 40% down on negative amortization loans. In such loans, payments don't meet interest. Thus a borrower's debt principal grows.

These "neg-am" loans have triggers that demands payments jump dramatically if the debt reaches a percentage of the original balance.

That was his undoing.

"I knew I was sitting on time bombs," Forgaard said. "I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance.

"I didn't anticipate a downturn of epic proportions such that home values are 40 percent less than they were," he said.

 

The mortgage market has melted down in the past two years in a crisis that began in the subprime sector and has left millions of Americans facing the possibility of foreclosure on their homes.

 

'THIS COULD GET UGLY'

 

Forgaard bought his first investment home in the booming housing market of North Las Vegas in 2004, followed in the next two years by eight others in such hot markets as Phoenix and Palm Springs, California, before he realized in 2006 that the situation was worse than he had feared.

 

"I knew that the market was soft but at that point I'm realizing that this could really get ugly," he said. "At that point I had a bad feeling in my stomach."

 

Forgaard thought he still had enough equity in the homes to "take a huge hit," possibly losing most of his investment, but thought for a while that he could still ride out the storm.

 

"It really wasn't until five months ago that I realized, 'Hey, you know what? Not only am I going to lose everything I have invested but this is going to force me into bankruptcy," he said.

 

"I'm going to lose my car and my primary (home) and we're not going to be able to live in Santa Cruz, where I was born and raised, and live by the beach. And that was pretty tough to take."

 

Experts say speculators like Forgaard, who count on real estate values to keep rising to pay off their debt, play a risky game and doubly so when they use neg-am loans.

 

"You are essentially betting the house on the strength of the housing market and if you're that leveraged in debt and the market goes down, you're going to lose your shirt," said Austin King, director of the community organizer ACORN's Financial Justice Center.