I wrote this article several months ago. I recently talked with a friend who is refinancing under the mortgage plan that Obama set up to help folks with underwater mortgages. My friend is underwater by about $10,000. He is refinancing a 6% mortgage with a 3% mortgage and will have lower payments. I am happy for him, but have no idea how this will help him with his underwater mortgage other than making his payments lower? It does solve a problem for lenders who get rid of the loan, maybe he wants to help the banks.
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I have been reading about the mortgage deals Obama is proposing for folks whose home values are less than their mortgage balances. As I understand it, he wants to get lower rate financing for these folks that are current on their mortgages and would like a lower payment on their loans. I don’t understand how this will solve their problem of being underwater on their mortgage unless folks take the freed up cash and make principal payments on their loans to bring down the shortfall. That is the only way the shortfall problem will go away other than home values once again increasing. If we really want to get rid of the shortfalls, why don’t we offer refinancing at lower rates, but keep the payment the same. The result will be that principal will go down faster and soon the shortfall may be eliminated via repayment and hopefully appreciation. Then the home owners’ would be free to sell or move, whatever they want. A lower payment may make people feel better about their homes investment, but it won’t solve their problem. I don’t understand why we are so concerned about underwater mortgages anyway, other than making it difficult to move or trade homes. Most of our major expenditures that we finance go down in value much quicker than our debt on them; car, appliances, electronic toys etc all take a hit the day we buy them. I think we have been confused with the house bubble even as folks made and lost fortunes in the internet bubble. Maybe we should have bailed out all those internet investors too.
Hello there just came upon your blog from Google after I typed in, “ARE WE SCARING FOLKS BY TELLING THEM THEIR MORTGAGE IS U NDER WATER?” or something similar (can’t quite remember exactly). Anyways, I’m delighted I found it because your subject material is exactly what I’m looking for (writing a university paper) and I hope you don’t mind if I collect some material from here and I will of course credit you as the source. Thanks for your time.
It really has nothing to do with affordability of paying for it. It is the fact that a homeowner with negative equity has no buying power. The homeowner will not be able to acquire lower interest rates (refi), or other options in order to lower his/her interest payments. That is unfair, since the homeowner didn’t “personally” get themselves underwater in the first place. It is a result of those “neighbors” who foreclosed their properties, walked away, and de-valued the homeowners property, sometimes by significant percentages. In the long run, the homeowner will eventually lose money, if they keep paying for basically a “dead horse”, that they won’t live long enough to eventually turn it over. That’s the problem, and how it becomes a hardship. You can’t sell something that is over 100% of it’s value. If houses in my area have a market value of $70,000, and I owe $100,000 on my mortgage, there is no way I can sell. That’s the hardship. If the banks would actually use the various programs for the individuals they were initiated for, underwater mortgages, and not those who had defaulted, the housing problem wouldn’t be that bad, but it is leaving those who are underwater the consideration of walking away. The penalties are minor compared to those people who are now burdened with paying for an underwater mortgage since their not-so-good neighbors packed up and left high and dry. Nobody, not the Feds, the bankers, lenders, servicers etc., seem to get this point. None see the trend and pictures. They’re all gangsters and crooks. A mortgage in America is criminal, and the suckers who get swept into it, are dumb—including me. It is not an investment of any kind; it is a contract and only a contract.
Thanks for posting you thoughts.