In King County, where one of the Bales' properties is located, home prices have dropped 20 percent since 2006, according to the Northwest Multiple Listing Service. In Pierce County, where the Bales family now lives, property values are down almost 30 percent.
County records show Robert and Karilyn Bales refinanced their properties several times as the housing market took off, but slid into a debt spiral they couldn't escape as soon as home prices began to drop.
Falling Behind
Karilyn Bales -- then Karilyn Primeau -- bought her first house in Auburn, Washington, in 1999, taking out a traditional loan insured by the Federal Housing Administration. The agency promotes home ownership among low- and middle-income borrowers, often with modest down payments. County documents show she took out a loan for $99,308, almost the full amount of the $99,950 purchase price.
According to the documents, she fell behind on the payments by about $5,600 in 2003, but managed to avert a scheduled trustee's sale.
She refinanced the property in 2004 for $99,400.
Whether Karilyn Bales' position at Washington Mutual gave her any special access to lenders is unclear. The couple was paying relatively high adjustable interest rates as they continued to take out mortgages.
After they married in 2005, they refinanced the Auburn house again, this time for $166,000 and a floating interest rate of almost 8 percent.
Second Home
The Bales family rented out the first property and bought their second home at the end of 2005 with two different loans. The first was a mortgage with an adjustable interest rate of 6.75 percent that could go as high as 13.45 percent, according to county records. The second was a standalone loan for $56,000. County records don't show the interest rate.
Prepayment on the first loan carried a penalty equal to six months of interest payments, the documents state.