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NORTH LAS VEGAS — Dayna and Scott Merritt ask themselves almost every day if they should keep paying their mortgage.
Many other residents on their street, Helens Pouroff Avenue, stopped long ago. Since the 69 new homes on this street were sold in 2006, almost half the owners have defaulted on their mortgages. Most of the houses went into foreclosure, which helped drive prices down for others on the street.
The Merritts' house has suffered a typical fate. The couple paid $385,000 for it in 2006. It's now worth about $180,000, recent sales indicate, and Las Vegas prices are still falling.
The Merritts are torn between continuing to sink money into a house that may never regain its value or finding a way out. They have plenty of company. About 11 million U.S. homeowners are underwater on their mortgages, meaning they owe more on them than their homes are worth. Of those, 2 million are so deeply underwater that market researcher CoreLogic predicts their homes will go into foreclosure or distressed sales.
The risk that more of those homeowners will default threatens housing markets nationwide, says CoreLogic economist Sam Khater. What's happened here does little to quell those fears.
Five years after the carnage began, those who walked from their Helens Pouroff homes say they're recovering from financial ruin. Several say they're considering buying homes again. But those still here have only seen values erode further. One by one, more consider an escape, which could mean walking away from their mortgage.
"We've stuck it out. But there's been no 'attaboy,'" says Dayna Merritt, 43, a substitute teacher. "We're paying on something that seems like it won't work out for us."
The threat of defaults driven by continued home price declines — and a sputtering U.S. economy — is particularly acute in Las Vegas, the foreclosure capital of the U.S. for more than four years.
Here, 66% of homeowners with a mortgage are underwater, compared with 23% nationwide. Almost one in four Nevadans who lost homes to foreclosure admitted in a survey that they walked away from their mortgages even though they could afford to pay, according to the Nevada Association of Realtors.
Defaulting on a mortgage can have dire consequences, including a 150-point drop in credit scores, tainted credit reports for years — up to 10 if one goes bankrupt — lost access to credit and higher costs for such things as insurance and new loans. In most states, lenders have years to try to collect losses suffered from foreclosures or other distressed home sales. That can lead to seized bank accounts and garnished wages, says Michele Johnson, CEO of Las Vegas Consumer Credit Counseling Service. People who abandon a mortgage will "live under a cloud" for years, she says.
Still, the grinding down of resolve to keep paying on deeply underwater homes is evident on Helens Pouroff, a straight, sun-baked street behind security gates where stucco homes are separated by a few feet of rock garden and small changes in floor plans.
Last year, Helens Pouroff saw just one new notice of default after 17 were filed in 2009, according to public records tracked by researcher ForeclosureRadar. This year, four homeowners who bought in 2006 have defaulted, public records show. "There's two types of people," says Dave Peterson, 38, a former Helens Pouroff homeowner. "People who see it coming and do something right away, and people who try to hold on until something forces them to let go."
A ‘toxic asset’
Peterson let go fairly early. He defaulted on his Helens Pouroff home in late 2008.
Like others, the former real estate agent bought in the up-and-coming Las Vegas suburb expecting prices to continue to sizzle. Instead, they peaked the month he bought and then tanked, as did Peterson's income. "I looked at our expenses like a corporation looks at their expenses, and the (house) was a toxic asset," Peterson says.
Peterson declared bankruptcy in 2009 and moved out of his $353,000 Helens Pouroff home. He loved the house — 1,800-square-feet with a tile courtyard — but not the $3,000-a-month mortgage for an asset declining in value.
Peterson suffered the pains of bankruptcy. His father, a Wyoming man who bought one house in his lifetime, thought the mortgage default was "irresponsible," Peterson says. He searched six weeks to find a rental for his wife and new baby as Las Vegas landlords scoffed at his credit rating, which fell to the 500s from the respectable 700s.
Now, almost two years out of bankruptcy, Peterson's credit score is back to 680, he says. That's about 60 points below the level needed to get the best pricing on home loans.
Without a $3,000-a-month mortgage to worry about, the couple pay $1,350 a month for a rented townhouse in a nicer neighborhood.
Instead of running up credit card debt to stretch income mainly devoted to paying their mortgage, Peterson, who now works in health care sales, and his wife, Gabby, save one of four paychecks they earn each month.
The couple hope to buy a house in their neighborhood next year. Peterson could be eligible for a home loan through the Veterans Administration. To get a conventional loan, he'd probably have to wait another year, because of his bankruptcy.
"I think we're in a good place now," Peterson says. To have stayed on Helens Pouroff, he says, "would've felt like prison."
Numbers told the story
Tamara Lemmon, a 33-year-old Internet marketing entrepreneur, feels the same way.
She bought the same month as Peterson but defaulted months earlier, after running through savings and losing an advertising job. A former professional poker player who's good with numbers, Lemmon sat with a spreadsheet in 2008 and calculated how long it might be before her home again would be worth what she paid for it 18 months before. "It was like 20 years," she says.
Lemmon filed for Chapter 7 bankruptcy protection in 2008, listing $1.4 million in real estate debt, including the Helens Pouroff house and three rental properties. They all went back to the banks. Lemmon remarried and moved to Utah. She could be eligible for a home loan this summer through the Federal Housing Administration.
Not paying her previous debts "still bugs me," Lemmon says. But leaving Helens Pouroff "was absolutely the best financial decision."
Because they filed for bankruptcy, their mortgage debts were erased and Peterson and Lemmon run no risk that they'll be hunted down by lenders for losses suffered on their homes.
In most states, including Nevada, mortgage lenders have years to go after debtors who don't file for bankruptcy to try to recoup losses from foreclosures or short sales. A short sale is when lenders and borrowers agree to sell a house for less than what's owed.
Nationwide, lenders have not been aggressive in pursuing foreclosure losses on a broad basis, real estate attorneys say. But they still have time, and many will likely sell such cases to debt collection agencies, says Florida foreclosure defense attorney Roy Oppenheim. "I don't think we've seen the end of this yet," he says.
Lemmon opted for bankruptcy to avoid such a cloud. "I didn't want to feel I was looking over my shoulder. I just wanted closure," she says. One regret in letting the house go?
"That I didn't do it sooner," she says.
Money ‘we’ll never see again’
Busting out was easier for Peterson and Lemmon than for others. Like 31 of the 69 original Helens Pouroff buyers, Peterson put down no money, taking advantage of the lending standards of the time. Lemmon put about 6% down.
Those with minimal down payments have been more likely to default, USA TODAY found in analyzing ForeclosureRadar data.
Of the homeowners who put less than $100 down to buy, about half defaulted on the mortgage, records indicate. Of those who put more than $69,000 down, about 40% defaulted. The Helens Pouroff homes, in 2006, ranged from $322,000 to almost $470,000, depending on size.
Belinda and William Haag were one of the couples who put a big chunk down, $82,000 that "we'll never see again," says Belinda Haag, 53.
The couple, both federal government contractors, have failed to get their Helens Pouroff loan modified and still owe $344,000 on a home they estimate might sell for $180,000. They pay $2,044 a month on the mortgage. They could rent a similar house in the same area for about $1,000 a month, Haag says.
After paying for five years, the Haags expect to put their home on the market this summer. They're hoping for a short sale, which can be less damaging to credit ratings than a foreclosure. If the bank doesn't agree to a short sale, "We walk," Haag says. "We're going to go back to renting and will put money in our 401(k)s."
Rachael, 41, and Joseph Stewart, 46, likewise have run out of patience with their Helens Pouroff mortgage. They recently stopped paying and are hoping their lenders alter their loan.
The Stewarts, who paid top dollar for their home, have watched one house after another go into foreclosure. They've picked up trash and plucked weeds in abandoned front yards. The couple also altered their lifestyle as the recession hammered Joseph's chiropractor practice.
Rachael Stewart, a high school chemistry teacher, now shops at T.J.Maxx and Target, not Dillard's. She gets her hair cut every nine weeks, not every six. The couple sold their Mini Cooper.
"I took a coupon class," she says. "I used to throw those things away."
The last straw for the Stewarts came a few months ago when a law enforcement official showed up at their door, looking for a new neighbor who rents a similar house for far less than what the Stewarts pay to own, Stewart says. When the Stewarts bought in 2006, the development barred rentals. "I'm just irritated," she says. "Everybody else gets a break. I've never stopped paying my bills before," she says.
The Stewarts' loan was modified last year to run 40 years instead of 30. Given continued price drops, they want more concessions. If they don't get them, "We could buy a house like this for half as much," Stewart says, perched at the long granite counter in her kitchen. "We thought we'd raise our kids here. But it is just a house."
The Stewarts live across the street from their friends, the Merritts. The Merritts started the loan-modification process in 2009. They never finished as reports of others' failed attempts flew through the neighborhood and the news media.
The Merritts also made a big down payment, almost $80,000, when they bought in 2006.
Now, Scott Merritt's father, a retired Marine, sends him a spreadsheet each month detailing how long it will take the couple to climb out of the hole — not even considering getting their $80,000 back. The latest estimate: 2020.
"He says, 'Walk away; walk away,'" says Scott Merritt, 40. "But what then?"
Merritt has searched for nearby rentals so his children could stay in the same schools or other good ones. There isn't much to rent in those neighborhoods, he says. Merritt, who moved a lot as a kid, wants more stability for his children, ages 8 and 10. The couple have good credit, a sense of obligation for their debts and distaste for the uncertainty of moving. They bought the home knowing they wouldn't be able to save early on. But Dayna was pursuing a master's degree, which she completed to be a school counselor. Jobs are now scarce, and the Merritts still can't save.
Scott Merritt's income, as a tipped banquet server at Caesars Palace, fell 10% in recent years. The family now goes to the park, for free, not the movies. Last year, instead of flying to San Antonio for vacation, they drove. Twenty hours.
The Merritts also are five years closer to college bills and retirement than when they bought the home. If the Stewarts leave the street, there's one less reason to stay. "Every month," Dayna Merritt says, "I ask myself, 'Why are we paying this?'"