Payments were manageable until health, work situation changed

It was a deal Randy and Rochelle Clayton couldn't pass up.

A bank was offering the couple no-money-down financing on a $625,000 Summerlin home in August 2005.

All the Claytons had to do was state their income, about $140,000 a year, on their mortgage application and come up with $8,000 in closing costs.

The initial payments seemed manageable enough: The first loan had an adjustable interest rate that opened at 6.5 percent, while the second mortgage had a fixed rate of 11 percent. The Claytons were paying about $4,000 a month on the mortgages, and were earning more than $11,000 a month.

The couple's circumstances took a turn in October 2006, when doctors diagnosed Rochelle Clayton with breast cancer. She yielded her job as a food server at Wynn Las Vegas to surgeries and chemotherapy.

The family had insurance to cover their medical bills, but their household income dropped by about half. To make matters worse, in early 2007 Randy Clayton's income as a union carpenter began slipping when a lethargic housing market began denting demand for his "finishing work."

The couple were down to about $60,000 a year in income.

Thus were the Claytons unable to manage when the interest rate on their home loan rose earlier this year.

That teaser rate of 6.5 percent jumped to 9 percent, and the Claytons' monthly housing payment rose to $5,000. They couldn't pay their utility bills, and all discretionary spending stopped. They also asked their son's private school to forgive his tuition, a request the school granted.

The couple tried to sell their 3,600-square-foot home in the winter but couldn't get an offer above $550,000. A deal with the bank to bring their mortgage current fell through after the bank suddenly demanded $18,000 up front. Now, the Claytons plan to just walk away and sign their home over to the bank for an auction.

"The priority became to keep (Rochelle) alive, and, with that, we were looking for compassion from institutions," Randy Clayton said. "They said, 'We're sympathetic, but give us our money.'"

Randy Clayton said people who say he took on too much house have a "valid point."

"But my only response would be, 'If you were offered something with this much luxury in it and it cost you virtually nothing out of your pocket, what would you do?' People will say we were overextended, but when you don't have to give anything other than the income you're earning, and there's no down payment or rigmarole, who wouldn't take it? It's the lender's fault for making it too easy."

Clayton, whose wife just returned to work as a spa coordinator at Wynn, is looking to lease a home in the northwest or Summerlin. He's eyeing a 4,000-square-foot place with a pool and a $2,500-a-month rental rate. He figures it's a good deal because he doesn't have to pay taxes and insurance on the property.

'"For me, my income substantiates a big place," he said. "My wife's cancer is in remission, so we're back in an income position where we have a little above the income of a normal person."