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Nearly one in three US homeowners owe more on mortgage than their home is worth

The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration’s efforts to stabilize the housing market.

The increase in the number of such “underwater” borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates.

For instance, fewer will qualify to take advantage of a key component of the Obama administration’s plan to stabilize the housing market. Under the plan, announced in February, as many as five million homeowners whose loans are owned or guaranteed by government-controlled mortgage giants Fannie Mae and Freddie Mac can refinance their mortgages, but only if the mortgage loan is a maximum of 105% of the home’s value.

Government officials are considering an increase in that limit. “It’s a question that we’re looking at,” said James Lockhart, director of the Federal Housing Finance Agency, which regulates Fannie and Freddie.

Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter.

“What’s going on here is that you don’t have any markets that have turned around and you have new markets, like Dallas, that have joined the ranks” of communities where home prices have fallen, said Stan Humphries, a Zillow.com vice president.

Borrowers who owe far more than their home is worth may also be less likely to participate in another part of the government’s housing plan, which provides incentives for mortgage companies to modify loans to make payments more affordable. Thomas Lawler, an independent housing economist, said borrowers who owe 30% more than their homes are worth are far more likely to walk away from their property than those who owe just 5% or 10% more and expect prices to rebound. More than one in 10 borrowers with a mortgage owed 110% or more of their home’s value at the end of last year, according to First American CoreLogic.

There are some recent indications that the housing market could be beginning to stabilize. The National Association of Realtors pending home-sales index, for instance, increased 3.2% in March.

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Just how many borrowers are underwater is a matter of some dispute, with the answer depending in part on assumptions regarding home values and mortgage debt outstanding. Variations in home-price estimates can make a major difference in the number of borrowers who are underwater. In addition, borrowers who are already in the foreclosure process may be counted as being underwater if the title to their property hasn’t changed hands.

Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, said underwater estimates can be too high if they use price data that includes a large number of foreclosures. Foreclosed homes tend to sell at a discount, he said, making it appear that prices have fallen more than they actually have.

Moody’s Economy.com estimates that of 78.2 million owner-occupied single-family homes, 14.8 million borrowers, or 19%, owed more than their homes were worth at the end of the first quarter, up from 13.6 million at the end of last year.

Part of the reason Zillow’s numbers are higher may be that it looks at mortgage debt taken out at the time the home was purchased and doesn’t adjust for any payments since made toward the outstanding mortgage balance. It also assumes that borrowers who took out home-equity lines of credit at the time of purchase have fully tapped the amount they can borrow. That approach can overstate the portion of borrowers who are underwater, Mr. Zandi said.

Mr. Humphries of Zillow calls his methodology conservative and said Zillow’s use of pricing for individual homes provides a better measure of home valuations than Mr. Zandi’s approach, which relies on market-level estimates of home values. He adds that Zillow doesn’t include foreclosures in its pricing models.

Write to Ruth Simon at ruth.simon@wsj.com and James R. Hagerty at bob.hagerty@wsj.com

Finally, the truth about Area 51
After decades of denying the facility’s existence, five former insiders speak out by Annie Jacobsen Area 51. It’s the most famous military institution in the world that doesn’t officially exist. If it did, it would be found about 100 miles outside Las Vegas in Nevada’s high desert, tucked between an Air Force base and an abandoned nuclear testing ground. Then again, maybe not— the U.S. government refuses to say. You can’t drive anywhere close to it, and until recently, the airspace overhead was restricted—all the way to outer space. Any mention of Area 51 gets redacted from official documents, even those that have been declassified for decades.

It has become the holy grail for conspiracy theorists, with UFOlogists positing that the Pentagon reverse engineers flying saucers and keeps extraterrestrial beings stored in freezers. Urban legend has it that Area 51 is connected by underground tunnels and trains to other secret facilities around the country. In 2001, Katie Couric told Today Show audiences that 7 percent of Americans doubt the moon landing happened—that it was staged in the Nevada desert. Millions of X-Files fans believe the truth may be “out there,” but more likely it’s concealed inside Area 51’s Strangelove-esque hangars—buildings that, though confirmed by Google Earth, the government refuses to acknowledge.

The problem is the myths of Area 51 are hard to dispute if no one can speak on the record about what actually happened there. Well, now, for the first time, someone is ready to talk—in fact, five men are, and their stories rival the most outrageous of rumors. Colonel Hugh “Slip” Slater, 87, was commander of the Area 51 base in the 1960s. Edward Lovick, 90, featured in “What Plane?” in LA’s March issue, spent three decades radar testing some of the world’s most famous aircraft (including the U-2, the A-12 OXCART and the F-117). Kenneth Collins, 80, a CIA experimental test pilot, was given the silver star. Thornton “T.D.” Barnes, 72, was an Area 51 special-projects engineer. And Harry Martin, 77, was one of the men in charge of the base’s half-million-gallon monthly supply of spy-plane fuels. Here are a few of their best stories—for the record:

On May 24, 1963, Collins flew out of Area 51’s restricted airspace in a top-secret spy plane code-named OXCART, built by Lockheed Aircraft Corporation. He was flying over Utah when the aircraft pitched, flipped and headed toward a crash. He ejected into a field of weeds.

Almost 46 years later, in late fall of 2008, sitting in a coffee shop in the San Fernando Valley, Collins remembers that day with the kind of clarity the threat of a national security breach evokes: “Three guys came driving toward me in a pickup. I saw they had the aircraft canopy in the back. They offered to take me to my plane.” Until that moment, no civilian without a top-secret security clearance had ever laid eyes on the airplane Collins was flying. “I told them not to go near the aircraft. I said it had a nuclear weapon on-board.” The story fit right into the Cold War backdrop of the day, as many atomic tests took place in Nevada. Spooked, the men drove Collins to the local highway patrol. The CIA disguised the accident as involving a generic Air Force plane, the F-105, which is how the event is still listed in official records.

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As for the guys who picked him up, they were tracked down and told to sign national security nondisclosures. As part of Collins’ own debriefing, the CIA asked the decorated pilot to take truth serum. “They wanted to see if there was anything I’d for-gotten about the events leading up to the crash.” The Sodium Pento-thal experience went without a hitch—except for the reaction of his wife, Jane.

“Late Sunday, three CIA agents brought me home. One drove my car; the other two carried me inside and laid me down on the couch. I was loopy from the drugs. They handed Jane the car keys and left without saying a word.” The only conclusion she could draw was that her husband had gone out and gotten drunk. “Boy, was she mad,” says Collins with a chuckle.

At the time of Collins’ accident, CIA pilots had been flying spy planes in and out of Area 51 for eight years, with the express mission of providing the intelligence to prevent nuclear war. Aerial reconnaissance was a major part of the CIA’s preemptive efforts, while the rest of America built bomb shelters and hoped for the best.

“It wasn’t always called Area 51,” says Lovick, the physicist who developed stealth technology. His boss, legendary aircraft designer Clarence L. “Kelly” Johnson, called the place Paradise Ranch to entice men to leave their families and “rough it” out in the Nevada desert in the name of science and the fight against the evil empire. “Test pilot Tony LeVier found the place by flying over it,” says Lovick. “It was a lake bed called Groom Lake, selected for testing because it was flat and far from anything. It was kept secret because the CIA tested U-2s there.”

When Frances Gary Powers was shot down over Sverdlovsk, Russia, in 1960, the U-2 program lost its cover. But the CIA already had Lovick and some 200 scientists, engineers and pilots working at Area 51 on the A-12 OXCART, which would outfox Soviet radar using height, stealth and speed.

Col. Slater was in the outfit of six pilots who flew OXCART missions during the Vietnam War. Over a Cuban meat and cheese sandwich at the Bahama Breeze restaurant off the Las Vegas Strip, he says, “I was recruited for the Area after working with the CIA’s classified Black Cat Squadron, which flew U-2 missions over denied territory in Mainland China. After that, I was told, ‘You should come out to Nevada and work on something interesting we’re doing out there.’ ”

Even though Slater considers himself a fighter pilot at heart—he flew 84 missions in World War II—the opportunity to work at Area 51 was impossible to pass up. “When I learned about this Mach-3 aircraft called OXCART, it was completely intriguing to me—this idea of flying three times the speed of sound! No one knew a thing about the program. I asked my wife, Barbara, if she wanted to move to Las Vegas, and she said yes. And I said, ‘You won’t see me but on the weekends,’ and she said, ‘That’s fine!’ ” At this recollection, Slater laughs heartily. Barbara, dining with us, laughs as well. The two, married for 63 years, are rarely apart today.

“We couldn’t have told you any of this a year ago,” Slater says. “Now we can’t tell it to you fast enough.” That is because in 2007, the CIA began declassifying the 50-year-old OXCART program. Today, there’s a scramble for eyewitnesses to fill in the information gaps. Only a few of the original players are left. Two more of them join me and the Slaters for lunch: Barnes, formerly an Area 51 special-projects engineer, with his wife, Doris; and Martin, one of those overseeing the OXCART’s specially mixed jet fuel (regular fuel explodes at extreme height, temperature and speed), with his wife, Mary. Because the men were sworn to secrecy for so many decades, their wives still get a kick out of hearing the secret tales.

Barnes was married at 17 (Doris was 16). To support his wife, he became an electronics wizard, buying broken television sets, fixing them up and reselling them for five times the original price. He went from living in bitter poverty on a Texas Panhandle ranch with no electricity to buying his new bride a dream home before he was old enough to vote. As a soldier in the Korean War, Barnes demonstrated an uncanny aptitude for radar and Nike missile systems, which made him a prime target for recruitment by the CIA—which indeed happened when he was 22. By 30, he was handling nuclear secrets.

“The agency located each guy at the top of a certain field and put us together for the programs at Area 51,” says Barnes. As a security precaution, he couldn’t reveal his birth name—he went by the moniker Thunder. Coworkers traveled in separate cars, helicopters and airplanes. Barnes and his group kept to themselves, even in the mess hall. “Our special-projects group was the most classified team since the Manhattan Project,” he says.

Harry Martin’s specialty was fuel. Handpicked by the CIA from the Air Force, he underwent rigorous psychological and physical tests to see if he was up for the job. When he passed, the CIA moved his family to Nevada. Because OXCART had to refuel frequently, the CIA kept supplies at secret facilities around the globe. Martin often traveled to these bases for quality-control checks. He tells of preparing for a top-secret mission from Area 51 to Thule, Greenland. “My wife took one look at me in these arctic boots and this big hooded coat, and she knew not to ask where I was going.”

So, what of those urban legends—the UFOs studied in secret, the underground tunnels connecting clandestine facilities? For decades, the men at Area 51 thought they’d take their secrets to the grave. At the height of the Cold War, they cultivated anonymity while pursuing some of the country’s most covert projects. Conspiracy theories were left to popular imagination. But in talking with Collins, Lovick, Slater, Barnes and Martin, it is clear that much of the folklore was spun from threads of fact.

As for the myths of reverse engineering of flying saucers, Barnes offers some insight: “We did reverse engineer a lot of foreign technology, including the Soviet MiG fighter jet out at the Area”—even though the MiG wasn’t shaped like a flying saucer. As for the underground-tunnel talk, that, too, was born of truth. Barnes worked on a nuclear-rocket program called Project NERVA, inside underground chambers at Jackass Flats, in Area 51’s backyard. “Three test-cell facilities were connected by railroad, but everything else was underground,” he says.

And the quintessential Area 51 conspiracy—that the Pentagon keeps captured alien spacecraft there, which they fly around in restricted airspace? Turns out that one’s pretty easy to debunk. The shape of OXCART was unprece-dented, with its wide, disk-like fuselage designed to carry vast quantities of fuel. Commercial pilots cruising over Nevada at dusk would look up and see the bottom of OXCART whiz by at 2,000-plus mph. The aircraft’s tita-nium body, moving as fast as a bullet, would reflect the sun’s rays in a way that could make anyone think, UFO.

In all, 2,850 OXCART test flights were flown out of Area 51 while Slater was in charge. “That’s a lot of UFO sightings!” Slater adds. Commercial pilots would report them to the FAA, and “when they’d land in California, they’d be met by FBI agents who’d make them sign nondisclosure forms.” But not everyone kept quiet, hence the birth of Area 51’s UFO lore. The sightings incited uproar in Nevada and the surrounding areas and forced the Air Force to open Project BLUE BOOK to log each claim.

Since only a few Air Force officials were cleared for OXCART (even though it was a joint CIA/USAF project), many UFO sightings raised internal military alarms. Some generals believed the Russians might be sending stealth craft over American skies to incite paranoia and create widespread panic of alien invasion. Today, BLUE BOOK findings are housed in 37 cubic feet of case files at the National Archives—74,000 pages of reports. A keyword search brings up no mention of the top-secret OXCART or Area 51.

Project BLUE BOOK was shut down in 1969—more than a year after OXCART was retired. But what continues at America’s most clandestine military facility could take another 40 years to disclose.

ANNIE JACOBSEN is an investigative reporter who sat for more than 500 interviews after she broke the story on terrorists probing commercial airliners. When she isn’t digging into intelligence issues for the likes of the National Review, she’s snapping together Legos with her two boys.

Start-Up Promises More Game Realism Engineers Say Technology Will Speed Production of Film-Like 3-D Images

A start-up founded by former Apple Inc. engineers said it has developed technology that could bring film-like realism to computer games and change the way movie makers and other design professionals work.

The San Francisco company, Caustic Graphics Inc., plans to exploit a technique called ray-tracing that generates extremely accurate three-dimensional images. Ray-tracing is a mainstay of Hollywood studios, but remains out of reach for most PC users. A single image can take hours to generate; rendering a film can take months on hundreds of server systems.

Computer games and other PC software typically rely on a technology called rasterization. Though the results keep getting more realistic, developing an interactive form of ray-tracing has been a longtime quest in the computer industry.

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Caustic Graphics’ technology helps computer-generated images look more like photographs.

Caustic, whose name refers to light rays reflecting off a curved object, says it is close to achieving that goal. The company says its software and chips allow graphics chips to carry out ray-tracing calculations at a 20-fold speed-up compared with existing PC hardware. It said it expects to deliver chips by early 2010 that will be about 200 times faster.

In a demonstration, Caustic executives manipulated a photo-quality image of a sports car, removing components and changing lighting and background settings to change reflections on the vehicle’s surface.

“It’s the first honest acceleration of ray-tracing I’ve seen,” said Jon Peddie, a market researcher in Tiburon, Calif., who specializes in graphics technology.

Caustic faces many challenges. They include larger competitors and the need to persuade PC users to buy a second add-in card containing its chips, in addition to conventional graphics accelerators.

Caustic is largely the brainchild of James McCombe, a 26-year-old native of Northern Ireland who worked on graphics technology used in Apple’s iPhone and iPod. He left in 2006 with two other Apple engineers to form Caustic, a closely held company that employs 35 people and has raised \$11 million.

Mr. McCombe said graphics chips have hundreds of specialized calculating engines that are particularly good at rasterization, which converts three-dimensional models into pixels on a computer screen. Ray-tracing, by contrast, emulates the ways light rays bounce off objects in a scene. Graphics chips can’t easily handle those complex calculations, which require extensive communication between processors. Caustic has developed ways to keep data flowing to them efficiently, Mr. McCombe said.

Armed with the technology, Caustic executives say, designers who now work with the software equivalent of stick figures could manipulate realistic designs — without having to stop to render their images periodically. “This would really represent a breakthrough for us,” said Ron Frankel, president of Proof Inc., which develops “pre-visualizations” to show film directors and designers how movie scenes might be shot.

The company hopes to initially target architects, engineers and animators, and later entertainment applications on PCs and gaming consoles. Mr. McCombe expects accelerator cards using its chips to cost about the same as existing graphics accelerators, adding that its circuitry eventually could be combined with graphics chips. High-end graphics cards typically cost several hundred dollars.

But exploiting Caustic’s chips will require modifications to existing ray-tracing programs. Other companies, meanwhile, are finding ways to do ray-tracing using the microprocessors in PCs, rather than graphics chips. One is Bunkspeed Inc., which has a program called HyperShot that can make photo-quality images from three-dimensional computer models.

Philip Lunn, Bunkspeed’s chief executive, says that Caustic also faces potential competition from larger chip makers that include Intel Corp. and Nvidia Corp. The latter is collaborating with Mental Images GmbH, a software maker Nvidia acquired in 2007, to accelerate ray-tracing using graphics chips.

Mr. McCombe “is one of the smartest people in the business,” says Rolf Herken, Mental Images’ chief executive and chief technology officer. But “whether Caustic will have an impact on the design of future chips, that is an open question,” he added.

Write to Don Clark at don.clark@wsj.com