From Kiplinger. “Mike Franey, a mortgage loan officer in Bakersfield, Cal., saw trouble coming. For years, swarms of investors descended on his hometown, buying and flipping some of the cheapest housing in the state, driving up the area’s median home price from $99,000 in 2001 to $280,000 in 2006.”

“Franey feared that when the investors left for greener pastures, prices would decline and he and his wife, might lose the equity in their home just as they approached retirement.”

“‘I said, ‘We need to sell right now and rent until we can buy again cheaply,’ says Mike.”

“The Franeys sold in May 2006, just as prices peaked, for $577,000, nearly twice what they had paid in 2002…and they moved into a much smaller rental home.”

“But for Mira, owning a home meant security. She hated renting and wanted to buy again. So the Franeys purchased a four-bedroom, two-bath house in a nice neighborhood for $420,000. They used an ‘alt doc’ loan, one that lets borrowers state their income without proving it.”

“For six months, Mike didn’t make a single loan, and his six-figure income dropped by half in 2006. Struggling to make their mortgage payments of $3,200 a month and running out of savings, the couple tried to sell the home last fall but had no takers.”

“Mike approached their lender, Countrywide Financial, and offered the deed in lieu of foreclosure. Countrywide refused to do anything until the Franeys were delinquent, a common practice among lenders for legal and tax reasons.”

“The Franeys missed their first mortgage payment in January, and in February they listed the home for sale at $368,500. Countrywide agreed to accept a ’short sale,’ meaning it would cancel the couple’s debt in exchange for the proceeds of the sale. In early May, the couple lost a buyer who had offered $350,000 but then found a better deal while everyone waited for Countrywide to approve the sale.”

“The house is back on the market and now stands vacant. The Franeys moved into a rental with an option to buy in three years. By then, Mike’s loan underwriter tells him, he’ll be able to get a mortgage again, as his credit score and his income improve.”

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