Study: Money, Mental Health Strongly Related

A Gallup study reports that there is a strong relationship between income and mental health:

While the substantial majority of Americans rate their mental health today as excellent or good, there are significant variations in this self-reported mental health measure by one's socioeconomic position. Those with higher incomes are much more likely than those with lower incomes to report excellent mental health, and this relationship persists even when other variables such as age, education, gender, and marital status are taken into account.

Wealth inequality 10 times income inequality in United States

The wealth inequality between the bottom 10% and the top 10% in America is greater than ten times the income inequality between the bottom 10% and the top 10% in America, suggesting, perhaps, that much wealth is tied up in unrealized appreciation of family businesses, real estate, and securities portfolios, that higher earners put their money to work while low earners do not, and/or that the low income earners do not have enough money left over after meeting expenses to invest or save:

The best way to give people a sense of where they stand is to lay out some data. Every three years the Federal Reserve Board conducts a national survey that tracks the financial health of American households.

The Fed slices and dices this stuff with the vigor of an Iron Chef; the result is a rich, if dry, array of offerings on household net worth, pension and income levels, plus other demographic side dishes.

Whenever I slip these tidbits into cocktail party chatter, people are surprised to realize how little money it takes to win a gold star from the Fed. If you and yours are bringing in $40,000 a year, you're doing better than half the households in America.

Or, as a Washington think tank recently pointed out: If you're a teacher married to a policeman, your combined household income puts you in the top 25 percent of all households in the nation.

Below you'll find the average income picture sliced into income levels. Think of this chart as a parking ramp. If your household income is $170,000, you're among the nation's top 10 percent wage earners and get to park on the top floor.

Anything in six figures means you're in the top 20 percent and get to park on the floor right below.

Annual income parking ramp
Income level (percentile) Median income (rounded)

Level VI (90 to 100) $170,000
Level V (80 to 89.9) $99,000
Level IV (60 to 79.9) $65,000
Level III (40 to 59.9) $40,000
Level II (20 to 39.9) $24,000
Level I (less than 20) $10,000

Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey

So does making $170,000 a year make a person rich? Last year a plurality of respondents (29 percent) in a survey by The New York Times said that "rich" was making between $100,000 and $200,000 a year. Unfortunately, the survey didn't break out how many people in that salary range considered themselves rich. If the people I talk to are any indication, very few do.

Of course, income is only one part of the equation defining where you stand. Net worth is more telling. Net worth, as every financially precocious schoolchild knows, is the sum of one's assets -- home equity, investments, savings accounts, retirement funds, cars, furnishings and such things as jewelry, furs, wine collection, old baseball cards -- minus all outstanding liabilities such as mortgage balance, revolving and credit card debt, college loans and so on. Across all households, the national median net worth is $86,000. Half of your fellow citizens have more than that, half less. As you see, there's a massive disparity between the haves and have-nots.

Net worth parking ramp
Net worth (percentile) Median net worth (rounded)

Level VI (90 to 100) $833,600
Level V (80 to 89.9) $263,100
Level IV (60 to 79.9) $141,500
Level III (40 to 59.9) $62,500
Level II (20 to 39.9) $37,200
Level I (less than 20) $7,900

Source: Family Net Worth, 2001 Federal Reserve Board Survey

Where Do You Stand On America's Wealth Spectrum?, Bankrate.com, 11/1/2007

Also clear is that the distinction between wealth and income remains lost on the vast majority of Americans and most journalists, as well.

Why Money Doesn't Buy Happiness

Why Money Doesn't Buy Happiness, Newsweek Web Exclusive, 10/14/2007, by Sharon Begley:

All in all, it was probably a mistake to look for the answer to the eternal question—"Does money buy happiness?"—from people who practice what's called the dismal science. For when economists tackled the question, they started from the observation that when people put something up for sale they try to get as much for it as they can, and when people buy something they try to pay as little for it as they can. Both sides in the transaction, the economists noticed, are therefore behaving as if they would be more satisfied (happier, dare we say) if they wound up receiving more money (the seller) or holding on to more money (the buyer). Hence, more money must be better than less, and the only way more of something can be better than less of it is if it brings you greater contentment. The economists' conclusion: the more money you have, the happier you must be.

Depressed debutantes, suicidal CEOs, miserable magnates and other unhappy rich folks aren't the only ones giving the lie to this. "Psychologists have spent decades studying the relation between wealth and happiness," writes Harvard University psychologist Daniel Gilbert in his best-selling "Stumbling on Happiness," "and they have generally concluded that wealth increases human happiness when it lifts people out of abject poverty and into the middle class but that it does little to increase happiness thereafter."

That flies in the face of intuition, not to mention economic theory. According to standard economics, the most important commodity you can buy with additional wealth is choice. If you have $20 in your pocket, you can decide between steak and peanut butter for dinner, but if you have only $1 you'd better hope you already have a jar of jelly at home. Additional wealth also lets you satisfy additional needs and wants, and the more of those you satisfy the happier you are supposed to be.

The trouble is, choice is not all it's cracked up to be. Studies show that people like selecting from among maybe half a dozen kinds of pasta at the grocery store but find 27 choices overwhelming, leaving them chronically on edge that they could have chosen a better one than they did. And wants, which are nice to be able to afford, have a bad habit of becoming needs (iPod, anyone?), of which an advertising- and media-saturated culture create endless numbers. Satisfying needs brings less emotional well-being than satisfying wants.

The nonlinear nature of how much happiness money can buy—lots more happiness when it moves you out of penury and into middle-class comfort, hardly any more when it lifts you from millionaire to decamillionaire—comes through clearly in global surveys that ask people how content they feel with their lives. In a typical survey people are asked to rank their sense of well-being or happiness on a scale of 1 to 7, where 1 means "not at all satisfied with my life" and 7 means "completely satisfied." Of the American multimillionaires who responded, the average happiness score was 5.8. Homeless people in Calcutta came in at 2.9. But before you assume that money does buy happiness after all, consider who else rated themselves around 5.8: the Inuit of northern Greenland, who do not exactly lead a life of luxury, and the cattle-herding Masai of Kenya, whose dung huts have no electricity or running water. And proving Gilbert's point about money buying happiness only when it lifts you out of abject poverty, slum dwellers in Calcutta—one economic rung above the homeless—rate themselves at 4.6.

Studies tracking changes in a population's reported level of happiness over time have also dealt a death blow to the money-buys-happiness claim. Since World War II the gross domestic product per capita has tripled in the United States. But people's sense of well-being, as measured by surveys asking some variation of "Overall, how satisfied are you with your life?," has barely budged. Japan has had an even more meteoric rise in GDP per capita since its postwar misery, but measures of national happiness have been flat, as they have also been in Western Europe during its long postwar boom, according to social psychologist Ruut Veenhoven of Erasmus University in Rotterdam. A 2004 analysis of more than 150 studies on wealth and happiness concluded that "economic indicators have glaring shortcomings" as approximations of well-being across nations, wrote Ed Diener of the University of Illinois, Urbana-Champaign, and Martin E. P. Seligman of the University of Pennsylvania. "Although economic output has risen steeply over the past decades, there has been no rise in life satisfaction … and there has been a substantial increase in depression and distrust."

That's partly because in an expanding economy, in which former luxuries such as washing machines become necessities, the newly affluent don't feel the same joy in having a machine do the laundry that their grandparents, suddenly freed from washboards, did. They just take the Maytag for granted. "Americans who earn $50,000 per year are much happier than those who earn $10,000 per year," writes Gilbert, "but Americans who earn $5 million per year are not much happier than those who earn $100,000 per year." Another reason is that an expanding paycheck, especially in an expanding economy, produces expanding aspirations and a sense that there is always one more cool thing out there that you absolutely have to have. "Economic success falls short as a measure of well-being, in part because materialism can negatively influence well-being," Diener and Seligman conclude.

If money doesn't buy happiness, what does? Grandma was right when she told you to value health and friends, not money and stuff. Or as Diener and Seligman put it, once your basic needs are met "differences in well-being are less frequently due to income, and are more frequently due to factors such as social relationships and enjoyment at work." Other researchers add fulfillment, a sense that life has meaning, belonging to civic and other groups, and living in a democracy that respects individual rights and the rule of law. If a nation wants to increase its population's sense of well-being, says Veenhoven, it should make "less investment in economic growth and more in policies that promote good governance, liberties, democracy, trust and public safety."

(Curiously, although money doesn't buy happiness, happiness can buy money. Young people who describe themselves as happy typically earn higher incomes, years later, than those who said they were unhappy. It seems that a sense of well-being can make you more productive and more likely to show initiative and other traits that lead to a higher income. Contented people are also more likely to marry and stay married, as well as to be healthy, both of which increase happiness.)

If more money doesn't buy more happiness, then the behavior of most Americans looks downright insane, as we work harder and longer, decade after decade, to fatten our W-2s. But what is insane for an individual is crucial for a national economy—that is, ever more growth and consumption. Gilbert again: "Economies can blossom and grow only if people are deluded into believing that the production of wealth will make them happy … Economies thrive when individuals strive, but because individuals will strive only for their own happiness, it is essential that they mistakenly believe that producing and consuming are routes to personal well-being." In other words, if you want to do your part for your country's economy, forget all of the above about money not buying happiness.

New York Woman Seeks Rich Husband on Craigslist

An anoymous New York woman, apparently presuming that money will buy her some sort of happiness in Manhattan - she termed $1 million per year as middle class in the Big Apple - posted a personal ad on newyork.craigslist.org seeking a rich husband and managed to stir up some controversy in the process:

NEW YORK (Reuters) - Deal or no deal? An online exchange between a woman looking for a husband who earns more than $500,000 a year and a mystery Wall Street banker, who assessed her potential for romance as a business deal, has cause quite an Internet stir.

The anonymous 25-year-old woman recently posted an ad on the free online New York community Web site Craigslist, http://newyork.craigslist.org/, appealing for advice on how to find a wealthy husband.

"I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don't think I'm overreaching at all," the woman, who described herself as "spectacularly beautiful" and "superficial," wrote.

"I dated a business man who makes average around 200 - 250. But that's where I seem to hit a roadblock. $250,000 won't get me to Central Park West," she said, asking questions like "where do rich single men hang out?"

The mystery banker, who said he fit the bill, offered the woman an analysis of her predicament, describing it as "plain and simple a crappy business deal."

"Your looks will fade and my money will likely continue into perpetuity ... in fact, it is very likely that my income increases but it is an absolute certainty that you won't be getting any more beautiful!" the banker wrote.

"So, in economic terms you are a depreciating asset and I am an earning asset," he said. "Let me explain, you're 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!"

"It doesn't make good business sense to "buy you" (which is what you're asking) so I'd rather lease," he said.

Woman seeks rich husband, banker says "crappy" deal, 10/10/2007

Money, Dating, Marriage

Opinion and commentary on dating and marriage by the well-to-do and wealthy:

Rich People Have Dating Problems:

But why is it that money and dating go hand in hand? Yesterday, a reader sent us a post from Craigslist written by a "spectacularly beautiful" woman who is looking for men making $500,000 or more. The post has since been deleted, but you can see it below one of the many responses it prompted. She may have been honest about her search, but she was ridiculed and lashes out at her detractors, "the reality is in New York there is only so much of the 'pie' and I didn't understand why plain or dumpy women are getting away with all the pieces." What ever happened to making your own cash and being satisfied -- and proud -- of your own accomplishments? Has nothing changed in the last fifty years? Because a woman once said, "Don't you know that a rich man is like a pretty girl? You don't marry her just because she's pretty. But, my goodness, doesn't it help?" Yeah, that was Marilyn Monroe, in Gentlemen Prefer Blondes... 1953.

Money Quote: Relative Wealth

"A wealthy man is one who earns $100 a year more than his wife's sister's husband." - H.L. Mencken

Research: Money Makes You Happy When...

While the various studies on money and happiness frequently conclude that the correlation between income, wealth, and happiness is weak or not as strong as 'people' may assume, one study found that "wealth generally allowed 'substantially better well-being, and less sadness and loneliness' [for those with disabilities]".

When Money DOES Buy Happiness, Robert Roi Britt, LiveScience.com, 4/6/2005

PS: When MBH comes across news articles, research, opinion, etc., related to our theme, we will post it - even when, like here - we're a little late to the game! Chances are you missed this story, and if you didn't, here's another chance to reconsider it.

Getting by on a Few Million

By almost any definition — except his own and perhaps those of his neighbors here in Silicon Valley — Hal Steger has made it.

Mr. Steger, 51, a self-described geek, has banked more than $2 million. The $1.3 million house he and his wife own on a bluff overlooking the Pacific Ocean is paid off. The couple’s net worth of roughly $3.5 million places them in the top 2 percent of families in the United States.

Yet each day Mr. Steger continues to toil in what a colleague calls “the Silicon Valley salt mines,” working as a marketing executive for a technology start-up company, still striving for his big strike. Most mornings, he can be found at his desk by 7. He typically works 12 hours a day and logs an extra 10 hours over the weekend.

“I know people looking in from the outside will ask why someone like me keeps working so hard,” Mr. Steger says. “But a few million doesn’t go as far as it used to. Maybe in the ’70s, a few million bucks meant ‘Lifestyles of the Rich and Famous,’ or Richie Rich living in a big house with a butler. But not anymore.”

Silicon Valley is thick with those who might be called working-class millionaires — nose-to-the-grindstone people like Mr. Steger who, much to their surprise, are still working as hard as ever even as they find themselves among the fortunate few. Their lives are rich with opportunity; they generally enjoy their jobs. They are amply cushioned against the anxieties and jolts that worry most people living paycheck to paycheck.

But many such accomplished and ambitious members of the digital elite still do not think of themselves as particularly fortunate, in part because they are surrounded by people with more wealth — often a lot more. ....

In Silicon Valley, Millionaires Who Don’t Feel Rich, Gary Rivlin, New York Times, 8/5/2007

Money & Work in the Virtual World of Second Life

A New York Times article, Even in a Virtual World, 'Stuff' Matters reports on consumerism and materialism in the online fantasy world of Second Life:

When people are given the opportunity to create a fantasy world, they can and do defy the laws of gravity (you can fly in Second Life), but not of economics or human nature. Players in this digital, global game don’t have to work, but many do. They don’t need to change clothes, fix their hair, or buy and furnish a home, but many do. They don’t need to have drinks in their hands at the virtual bar, but they buy cocktails anyway, just to look right, to feel comfortable.

Second Life residents find ways to make money so they can spend it to do things, look impressive, and get more stuff, even if it’s made only of pixels. In a place where people should never have to clean out their closets, some end up devoting hours to organizing their things, purging, even holding yard sales. ....

Second Life exclusives do exist: A magic wand was a hot item at one point, and the sex bed is currently in demand. (“If you lie on it with more than one avatar, it’s like you’re in a porn movie,” Mr. Au explained.)

But the more mundane items are what really drive the economy: clothes, gadgetry, night life, real estate. “People buy these huge McMansions in Second Life that are just as ugly as any McMansions in real life, because to them that is what’s status-y,” Mr. Wallace said. “It’s not as easy as we think to let our imaginations run wild, in Second Life or in real life.” .... “The average person wants a ranch house or a beach house” ....

Second Life players are evidently discovering what inheritors have struggled with for generations: It’s not as much fun to spend money you haven’t earned. Apparently, despite the common lottery-winning fantasies, all play and no work is a dull game, after all.

“People don’t take jobs just for the money,” said Dan Siciliano, who teaches finance at Stanford Law School and has studied the economies of virtual worlds. “They do it to feel important and be rewarded.”

And to buy more things. ...

Robert J. Bloomfield, a behavioral economist at Cornell University, studies investor behavior in the real world and recently became interested in how investors behave similarly in Second Life. “We know the little guy makes lots of dumb mistakes,” Professor Bloomfield said. “They tend to be overly impressed by the trappings of success. We see that magnified in Second Life.” ....

By Shira Boss, 9/9/2007

Charles Dickens Quote on Income & Happiness

Annual income twenty pounds, annual expenditure nineteen six, result happiness.
Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.

- Charles Dickens, David Copperfield

Money, Real Estate, Happiness: "One Family's Journey Into a Subprime Trap"

From the Wall Street Journal's RealEstateJournal.com:

Nearly two years ago, Mario and Leticia Montes found a home they loved, a gray stucco bungalow with a hot tub in the backyard in a middle-class neighborhood of Orange County [California - MBH].

The price was a major stretch at $567,000. But the couple, who had sold a home a few years earlier to move to a better area, was tired of renting. Mr. and Mrs. Montes convened a meeting with their two teenage daughters around the kitchen table to hash out the implications. "We agreed we wanted to be homeowners again," says Mr. Montes, "even if it meant the end of vacations and not eating out as often."

Like many people who jumped into the rising housing market in recent years, they had little money for a down payment and chose a loan that would hold their monthly payments down for the first two years, then "reset" to a much higher level. Mr. and Mrs. Montes say their mortgage broker assured them they would be able to refinance in a couple of years to keep their payments affordable.

With a December "reset" on their loan looming, however, the refinancing option now looks impossible. A friend who works as a loan officer called with some bad news this week: Similar homes in their area have been selling for $535,000 to $565,000 recently. That means the Monteses' loan balance may exceed the value of their home.

The Monteses are caught in a trap -- one that hundreds of thousands of people could face as the housing market totters and the easy credit of recent years dries up. They in effect bet that the boom in housing prices would continue. It was more important to hop onto the escalator than to wait until they could afford to make the leap according to traditional measures.

And with thousands of mortgage banks and brokers threatened with extinction, lenders that embraced all kinds of risky loans two years ago are enforcing increasingly strict standards. They are refusing even to consider extending new credit to people like the Monteses who lack any equity in their homes.

"We have a disaster on our hands," says Mr. Montes, a 48-year-old warehouse manager. He fears he won't be able to handle the payments after the December reset and wonders whether the family can avert foreclosure. "At this point," he says, "we really don't have a plan."

Until recently, the Montes family didn't seem like the type that would find itself faced with foreclosure. They live in a solid neighborhood and are both employed and in good health. "My wife and I make pretty good money," says Mr. Montes. Mrs. Montes works as a school secretary. Together, they earned nearly $90,000 last year.

But they already pay about $38,400 a year on their home loans, even before taxes and insurance. In December, when their primary loan "resets" to a higher rate, that cost will rise to about $50,000 a year, Mr. Montes says.

Tightening Standards

Lenders have been tightening their standards for the past year in the face of rising defaults and growing jitters among the investors who provide funding for loans. That tightening has accelerated in the past two weeks as many lenders -- uncertain at what price they might be able to sell loans -- have stopped making all but the safest ones.

"It's getting worse and worse," says Jeff Lazerson, chief executive of Mortgage Grader, a mortgage broker in Laguna Niguel, who tried to help the Montes family last spring but concluded even then that they couldn't qualify for a new loan. Many people who have been counting on a refinancing to ease their debt burdens will find that's now impossible, he says: "It's either work 24 hours a day to make ends meet [with the existing loan] or mail the keys back to the bank."

Being stuck with little or no home equity is no longer a rare situation. Christopher Cagan, director of research at First American CoreLogic, a housing and mortgage data supplier in Santa Ana, recently found that nearly 7% of 32 million U.S. households studied as of December owed more than their homes were worth, based on computer estimates of the property values. An additional 4% had home equity of 5% or less. Since then, house prices have edged down in much of the country, erasing more home equity.

Without a cushion of equity, homeowners are vulnerable to losing their homes to foreclosure if they suddenly are out of work, suffer a serious illness or, like the Montes family, face a jump in mortgage payments.

Partly as a result, foreclosures are surging. Moody's Economy.com, a research firm in West Chester, Pa., projects that lenders will acquire about 760,000 homes through foreclosure this year and 935,000 in 2008, up from an average of about 440,000 a year from 2000 through 2006.

When the Monteses decided to buy the bungalow in 2005, they had only a so-so credit record and little savings. So they settled for a "subprime" loan, with costlier terms than those available in the prime market.

The Monteses' primary loan is the type that became the dominant subprime mortgage during the housing boom of the first half of this decade -- and now has become a symbol of misguided lending, swept away by regulatory fiat and investors' flight from mortgages deemed too risky. These loans are known in the trade as 2/28 mortgages. The interest rate is fixed at a relatively low rate for the first two years (5.45% in the Monteses' case), then floats at a predetermined margin above an interest-rate index for the next 28 years. In many cases, that "reset" of the interest rate after two years leads to a monthly payment increase of 30% or more.

U.S. lenders originated about $600 billion of subprime home loans in 2006, or 20% of all home mortgages, according to Inside Mortgage Finance, a trade publication. About 56% of those subprime loans were 2/28 mortgages, says Keith Ernst, senior policy counsel at the Center for Responsible Lending, a nonprofit research and lobbying group in Durham, N.C.

The lending industry touted the 2/28 loans as "affordability" mortgages, because they helped people buy houses that wouldn't have been affordable with the higher immediate payments on 30-year fixed-rate mortgages. To make the loans even more affordable in the early years, they were often structured as "interest-only," meaning that principal payments were deferred until later.

Lenders sometimes described these loans as "credit-repair tools." The idea was that people with blemished credit records could take out a 2/28 subprime loan and keep up with the payments long enough to improve their credit records and qualify for a less-costly prime loan.

Earlier this year, regulators ordered subprime lenders to make such loans based on the borrower's ability to afford the loan after the reset, not just for the initial two years, as was the common practice. That change, along with tighter guidelines from rating agencies and risk-aversion among investors, has recently prompted major subprime lenders to stop making 2/28 loans. Instead, they are making more subprime loans that carry a fixed rate for at least five years, as well as ones that hold down payments by stretching the payments over 40 years instead of 30.

The Montes family got their loan through a mortgage broker in Rancho Cucamonga. Using what was then a common formula, the broker offered to arrange for two loans, one to cover about 80% of the home price and the other, a so-called piggyback loan, for the rest. For the first two years, their total monthly mortgage payments are about $3,200. The loans are initially interest-only.

Mr. Montes recalls feeling edgy about whether he would be able to afford the higher costs -- about $900 more per month -- due to take effect after two years. But he says the broker assured him he could refinance before those costs kicked in.

Mr. Montes preferred not to name the broker publicly because the broker has a business connection with a relative of the Monteses. The broker declined to comment.

Mrs. Montes says she was apprehensive about the broker's assurances. "But I blame that on that I don't understand the lingo they were talking," she says. "It's a scary experience.... All I could see was all these numbers flash before me... I said, 'Mario, I hope you don't get into something that is going to hurt us.'"

They moved into their home and hung a sign on the front door reading, "Life is a daily celebration of love." Within months, things started going wrong. The Monteses received a letter informing them their property taxes had been reassessed based on the $567,000 sale price instead of its previous $389,000 value. That raised their taxes to $6,000 from $2,900 a year and would have increased their monthly payments (including the mortgages and taxes) to $3,931. "Whoa!" Mr. Montes recalls saying. "I can't afford this. I went into emergency mode."

He was able to successfully challenge part of the tax increase, but another shock came in late February of this year when he began looking at refinancing possibilities. Mr. Montes says four brokers -- including the one who arranged the original loan -- turned him away, saying it wouldn't be possible to refinance because, with home prices flat at best, the family had little or no equity in the home. Worse for the Monteses, they learned that they faced a $12,000 prepayment penalty if they refinanced within three years of the original mortgages -- something that Mr. Montes says wasn't made clear to him when he took out those loans.

Then another broker told him in March that his home had gained enough in value for him to qualify for a more affordable loan. They paid for an appraisal and were told their home was worth $620,000, or about $53,000 more than they paid in 2005. The Monteses were jubilant, thinking their home was saved. But more than three months later, the broker outlined a package that would have involved payments far higher than indicated in earlier meetings.

Next, Mr. Montes sought the help of Laurie Arnold, a former neighbor who is a loan officer at IndyMac Bancorp, a large lender based in Pasadena. In another blow, Mr. Montes learned that the appraisal he had done in March -- at a cost of $375 -- is no longer valid. Ms. Arnold sounded out appraisers and concluded that there was no hope the house could appraise for enough to allow the family to qualify for a refinancing. Based on recent sale prices and other data, Zillow.com, an online service that provides home-value information, estimates that the price of a typical home in Fullerton is down 6.7% from a year ago.

The Monteses now hope for help from the company that services their loan, America's Servicing Co., a unit of Wells Fargo & Co. Mr. Montes telephoned America's Servicing Tuesday to ask whether it might consider a modification in the terms of the loans to help him keep the payments affordable beyond the reset date. An employee of the servicing company said that wouldn't be possible if the family has no home equity, Mr. Montes says.

A Wells spokesman declined to comment on the Monteses' loan but said the bank reviews requests for loan modifications "on a case-by-case basis and works with customers on solutions that address their individual financial needs."

Mr. Montes says the family may try to sell the house, but that would be tricky in today's weak market. Or they could try to trim other expenses and keep meeting the higher monthly home payments that are due to take effect in December.

Borrowing for College

There is very little wiggle room. Mr. and Mrs. Montes also have two car loans, with payments totaling about $700 a month, and are borrowing more money to help put their elder daughter through college. They recently had to tell their younger daughter they couldn't afford $70 a month for her to take piano lessons.

The couple now eat out once or twice a month, instead of once or twice a week before they bought the house. They have yet to visit a nearby jazz club they had hoped to frequent. The trips they used to take to Lake Tahoe now are out of the question.

To bring in a bit more income, Mr. Montes two weeks ago found a weekend job as a bartender for a catering company. He says he might be able to take on a third job.

"Bottom line, it's our little home," Mrs. Montes told a visitor one evening in April as tears welled in her eyes. "We're going to keep it. Hopefully, we won't go down and if we do, we're going to go down with a fight."