Of all the unpleasant changes that have come John and Jessica Browning's way during the past couple of years, perhaps the hardest was the realization that they'd been living in a fantasy world.
By the standards most Americans judged their financial health during the housing bubble, the Point Loma newlyweds were doing just fine. John, 34, was at the time a newly minted geologist who'd secured a good-paying job with healthcare benefits; Jessica, 36, was a nine-year Delta Airlines employee working lots of overtime. They had excellent credit, were in good health and had a large support network of loving friends and family. Anxious to be part of the booming San Diego real-estate market, the Brownings purchased a two-bedroom, 830-square-foot condominium three years ago in Point Loma.
“We bought at the high end at the time, when the market was peaking,” says Jessica, about to have her second baby. “There was a kind of panic at the time that if you didn't get in the housing market now, when home values were gaining $50,000 to $60,000 in equity every six months, you'd be completely priced out.”
The Brownings secured an adjustable-rate mortgage for the $420,000 condo. Soon after, the housing bubble popped, and as it deflated, so too did the couple's illusions that they were financially well situated. They thought they had planned for emergency contingencies, but once their monthly mortgage payments readjusted upward, their savings evaporated. They thought they had stable incomes, but once falling home prices began affecting the overall economy, their companies cut back on their hours and eliminated overtime. They thought they were living within their means, but then Jessica became pregnant with their first child earlier than they had planned.
It didn't happen all at once, but over a course of months—step by step, hit after financial hit.
“We needed to refinance,” Jessica says. “We were pretty confident—we thought that when we refinanced, we'd have a small amount of equity to reinvest. But the market kept depreciating, and we almost couldn't even get the condo appraised. The mortgage companies were being more cautious about who they lent to. We had to borrow about $50,000 from a friend to stay in the condo.”
The Brownings finally managed to refinance into a fixed-rate, negative-amortization loan.
Negative amortization allows the borrower to make mortgage payments lower than the accrued monthly interest on the loan, with any unpaid balance of the interest tacked on to the principal. The upside of negative amortization is it allows cash-strapped homeowners to reduce their monthly mortgage payments—at first, at least—until they get back on their feet. The downside is, the longer homeowners pay less than the monthly interest, the greater the principal—and thus, the greater the interest. The Brownings soon found that the home that was to be their nest egg was only sinking them further and further into debt.
As the economy soured, the cost of everything—groceries, gas, medical bills for son Mason (who was born premature)—continued to rise. John and Jessica cut back on everything considered not essential. Eating out became a rare luxury. Vacations were reduced to the occasional visit to family members. Jessica bought all of Mason's birthday and Christmas gifts at garage sales. But with the growing mortgage debt and the $50,000 loan that needed repaying—not to mention the realization that Jessica was once again pregnant—the couple knew they'd have to sell the condo. But at this point, housing values were plummeting in San Diego; almost no one was buying.
Desperate to get out of their mortgage, the couple concluded that the only option left was to “short-sell” their home—sell it at below mortgage value with the proceeds going straight to the mortgage lender. It would mean a big hit to their credit, but not as big as a foreclosure. The couple put the condo on the market at $100,000 below the value of their mortgage. At the time CityBeat spoke to them, they had two offers on it and reckoned they'd have to move out right around the time their baby was born.
Three years after wading into the San Diego real-estate market, the Brownings were leaving it deeply in debt, their credit shredded, their confidence shaken. Unable to afford another property in the Southern California market, the couple was considering leaving the state for Reno, Nev., where Jessica has family.
Nonetheless, Jessica remains optimistic about her family's future—to a point.
“If we can get into a situation where we don't have a lot of debt, we'll be OK,” she says. “But once I start thinking about having bad credit—I've never been in a situation like that. I'm just nervous about the unforeseen things popping up and having bad credit.”
This is the first in a semi-regular series that aims to tell the stories emerging from the economic crisis. Got a tale to tell? Write to firstname.lastname@example.org.