Some homeowners see giving up as best option

Teresa Bondora and her family abandoned their two-story brick home in Atlanta rather than fall behind on their mortgage and $30,000 worth of home renovation debt.

The decision was tough for Bondora, a home-schooling curriculum developer raised to believe that preserving good credit and paying bills on-time were key adult responsibilities.

“I was willing to walk away and live with someone else while we get out of debt,” Bondora says. “I’m not worried about anything anymore.”

Bondora isn’t the only homeowner making an about-face in her approach to the stigma of foreclosure; if anything, homeowners like her see that efforts to prevent foreclosure may make them more financially vulnerable than succumbing to it and starting anew.

Despite new refinancing and loan modification programs made available under the Obama administration, mortgage experts say that many homeowners still face difficult choices in the short run. The latest options may not affect the market for a few more quarters, they say.

When the real estate market first showed signs of weakness in fall 2006 — right when the Bondoras listed their home for $170,000 — the family faced tough circumstances. They watched at least a dozen seemingly qualified buyers fail to secure financing, and as Bondora’s husband, a contractor, began to see work evaporate.

Elissa Eubanks / for msnbc.com Mitch Castleberry works on the home he is sharing with his wife Teresa Bondora and her two children after losing their house. In exchange for the $300 rent to live in the home, the couple has agreed to do some renovation work on the home.

Buyers’ financing troubles continued over the course of the next nine months, even when the Bondoras dropped their price to $130,000 — a money-losing proposition for the family. With credit card debt mounting and no sale in sight, they borrowed from extended family to pay bills. Bondora began suffering panic attacks.

As the summer 2007 wore on, Bondora began thinking about the possibility of foreclosure, realizing how it could happen to almost anybody in a volatile market. With credit card payments increasing, her husband’s loss of work, and the home’s value declining, the family was facing trouble making ends meet. Had they succeeded in a sale earlier in 2007, they would have emerged unscathed; but with a sale looking impossible, foreclosure seemed inevitable.

Her father-in-law sat her down for a frank talk and asked her what mattered more: Shedding her home and regaining her mental health and happiness, or digging herself in further by running up debt trying to preserve a shrinking asset. A talk show on foreclosures hit home.

“It dawned on me that you have to save yourself before you sink,” Bondora says.

By the time her family mailed keys back to their lender during fall 2007 and moved in rent-free with friends, Bondora no longer cared about the fact she’d let her home go to foreclosure, nor did she care about the $15,000 property tax bill she got after relinquishing her property or the fact that her credit score has plummeted from about 690 to the 500s. The family escaped personal bankruptcy and will pay off their debt within 18 months.

In the hardest-hit areas of the U.S., such as California, Michigan, Nevada and Florida, new modification and refinancing options won’t necessarily help homeowners because “loan to value” ratios — which compare the loan’s size and the home’s value — are too high to qualify for the new programs, according to Rick Sharga, vice president of marketing at RealtyTrac, the Irvine, Calif.-based distressed property research firm.

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