"I Owe More Than My House Is Worth."
A homeowner looks for ways to stay afloat.
By Laura Cohn, Associate Editor
From Kiplinger's Personal Finance magazine, May 2009
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| Michelle Jacobson worries that her home's value won't bounce back. |
When Michelle Jacobson bought a brand-new, three-bedroom house on an oversize lot in Northwest Las Vegas five years ago, she thought she had it made. The house, which had granite kitchen countertops and a casita for the kids, was in the right school district. It had walk-in closets. And although it was a bit pricey at $287,000, it looked like the perfect place for Jacobson to settle down with her husband and two children. "We thought, We can't lose," Jacobson recalls.
So the 37-year-old real estate agent and manager of apartment buildings planted some roots. She and her husband acquired an interest-only loan with a fixed rate of 5.875% from Countrywide. Then, they got to work on the upgrades -- a pool with a rock waterfall for $40,000, ceramic-tile floors for $6,000, and customized closets for $2,800.
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When the house appraised for $500,000 just over three years ago, the improvements looked like a smart move. But that was then. Before long, the market turned -- big time. In fact, Nevada was the worst-hit state in the country thanks to a bubbly buildup of speculative condominiums and hotels. Home prices plummeted. Recently, says Jacobson, her house appraised for just $230,000. But her mortgage balance is $364,000, so the home she initially thought would be a good investment is instead underwater. As of the end of last year, 20% of all mortgages nationwide were in the same situation, according to First American CoreLogic, a Santa Ana, Cal., firm that analyzes real estate trends.
Jacobson's neighborhood is no longer as appealing as it once was, and she worries that her home's value won't bounce back when the market recovers. A lot of the homes in the community are foreclosures. What's more, the neighborhood is experiencing an increasing number of break-ins. Jacobson would like to move her family to the other side of the interstate, but they have few options. If they could sell the house for its appraised value, they'd owe the lender more than $130,000 -- money they don't have. They considered renting it out but nixed that idea because, in the current market, they'd be able to bring in only about $1,200 to $1,300 a month -- just over half of the monthly mortgage payment of $2,250.
Jacobson is worried about what a short sale (meaning the lender accepts a price that's less than the mortgage balance) or a voluntary foreclosure would do to her credit score, which is currently in the upper 700s. Plus, if she went to foreclosure, she and her husband wouldn't be able to buy another home for several years. On the other hand, if they stay in the house, they won't be able to pay back the loan in full after their ten-year interest-only loan comes to an end in four years. "We are in a desperate situation -- we could lose our house," says Jacobson.
Jacobson thought she could refinance her mortgage to get some wiggle room. Not a chance. Because their home is worth less than their loan, the refinance is considered high-risk. And when she called Countrywide to ask about modifying the terms of her loan, she was told she had to be three months behind on her mortgage payments to qualify. She's not -- and doesn't want to be.
The family's next step is to check with a HUD-certified housing counselor to see whether any options remain. But they might not be able to find relief from the Obama administration's housing program, which is likely to limit help for borrowers who are deeply underwater.
HERE'S WHAT YOU CAN DO TO SAVE YOUR HOME
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Do You Qualify for Housing Help? | ||
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Fighting a Foreclosure | ||
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Pricing Your Home for a Quick Sale | ||
If you owe more on your mortgage than your house is worth, get in touch with your lender to see if you qualify for a loan modification. If that doesn't work, contact Hope Now for free assistance on how to prevent a foreclosure. A coalition of HUD-approved counseling agents, investors and mortgage companies, Hope Now will help you come up with a plan of attack. Another good resource is a HUD-approved housing counseling agency.
More homeowners will qualify for assistance under President Obama's "Making Home Affordable" plan. Details of the plan are still being nailed down, but it includes an option to refinance that you can use if your mortgage is backed by Fannie Mae or Freddie Mac. It also has a loan-modification program to help reduce payments. Under this program, the lender would reduce monthly payments and Uncle Sam would kick in funds to lower them further. The Treasury Department is setting up a new Web site to explain the program.
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Reader Comments (56)
Posted by: Tom at 04/07/2009 01:17:26 PM
As someone who has experienced a foreclosure as a child, I hope this doesn't come off as condescending because I have a lot of sympathy for people who may lose their home, but the problem seems to be the idea that it was okay to to spend $27,000 a year on nothing but interest. You would think someone with good credit would understand the benefits of paying off your debt at (what was at the time) a historically very low interest rate....Hindsight is 20/20, but she REALLY should have been familiar with the risks at hand before buying this "pricey" property and pumping $50k in upgrades before paying a dime of principal. I do feel bad for people who got caught up in this fiasco, but the lesson is to run a few worst-case scenarios prior to taking unconventional financing.
Posted by: No pity at 04/07/2009 02:37:38 PM
This couple owes 80K more on the house now than when they bought it? They took out an interest-only loan, put at least 50K into..."upgrades" and took out an additional 30K or more?...
Posted by: DK at 04/07/2009 02:51:34 PM
...Interest only loan? Those never made sense....
Posted by: Ralph Weston at 04/07/2009 02:54:55 PM
...This is not the first housing decline that has ever happened and many of us have had the value of our homes shrink. Even if the mortgage is below the amount paid it will come back one day. Sounds as if they need to just hunker down and hang in there. Hope it all works out.
Posted by: T at 04/07/2009 02:56:34 PM
...I don't understand what the problem is - did she lose her job? I have to pay rent - if I don't pay my rent they kick me out and ruin my credit record. Is a loan of less than 6% onerous? I don't think so...She wants out of a fixed rate loan that has 4 more years to go right now, because she bought something that has gone down in value. I have some tech stocks in my IRA, could you get them bailed out, too, please?...
Posted by: rosha at 04/07/2009 04:02:15 PM
...never could afford the marble counter tops and big house either, but both homes we now have were paid for in full...
Posted by: RF at 04/07/2009 04:09:09 PM
My 401k has declined by more than $200k and now I can't retire when I planned....They made the decision to borrow the money...
Posted by: EZ at 04/07/2009 04:12:33 PM
...My wife and I saved for a house, put 20% down and bought a 30-year fixed. Did everything the right way. The house is smaller and doesn't have any upgrades, but that's what we could afford. We get no tax breaks, no special refinancing, and no "re-modification" of payments....We are in some dark times...
Posted by: Kevin at 04/07/2009 04:21:30 PM
I bought some stock using margin from my broker. The stock plummeted and now I owe more in the margin call than the stock is worth....Where's my gov't sponsored "margin modification" program?
Posted by: TM at 04/07/2009 04:29:38 PM
...She and her husband did only what countless other Americans did during the great housing price runup....But they don't deserve all this vituperation in the comments section....The System held their hand all the way.
Posted by: NJ at 04/07/2009 05:17:49 PM
...Intreest only? Yikes. But there are people out there, in numbers, I suspect, who...due to timing have had their home plummet in value by half or more. (I'm speaking from painful experience, here). With foreclosures through the roof, and stalled housing development, what choices does one have?... Or is there actual help coming/available for those responsible folk who are victims of poor timing and cannot sell or move (and might need to).
Posted by: Roger at 04/07/2009 05:54:27 PM
You readers need to wake up, I bought my home for $345k, it was a good deal for the area as homes are expensive in RI. In just three years my home value dropped to less than $240k and since this was an older home, needs constant repairs. I know where this family is coming from, I talked with the bank and I have no intentions of keeping the house unless they can modify the loan to its current value or they can have it - with 20k plus a year in interest payments, I have no regrets on doing this.
Posted by: Mike Phipps at 04/07/2009 06:01:09 PM
...(1) you don't buy a house or anything with an interest only loan...(2) You don't buy a new house in a new neighborhood and make 60K improvements if you don't plan on living there forever. While I am sorry (for them)...they should have known better. Rule one: you only borrow and leverage on an income producing asset. A house with a mortgage is not an income producing asset. A rental house is an income producing asset...
Posted by: OUCH !!!! at 04/07/2009 06:44:31 PM
...No savings now, no retirement left after 45 years of work. Our (downsized) house is underwater to boot. We now make enough to eek by, but have zero reserve...and likely do not qualify for anything.... oh, did I mention the substantial medical bills? The older we get the harder good jobs are to land. Many are worse off than us and they did the prudent and ethical thing too...others invited their misery in...At some point we may have to fold...still, today we have a home.
Posted by: Steve at 04/07/2009 06:48:22 PM
If your home plumments in value and you have a fixed rate 30 year mortgage, your payment doesn't change, so as long as you didn't reach for too much house, you should be able to service the debt. Could the house be worth less than the note? Yes, temporarily (which could mean as much as ten years), but it will come back in value once we get through this glut of inventory and recession. This family took out an interest only note and then financed tens of thousands of dollars in upgrades...Don't buy a house unless you can put at least 20% down (the old rule on avoiding PMI), and you can afford to make the payments. You will be fine.
Posted by: CHRIS SALAMONE at 04/07/2009 10:38:31 PM
I just read the comment from Mr. Mike Phillips.....Hey, Mike...An interest only loan is O.K. because most people stay in their home only 5-7 years. Your principal on the loan is not even dented for at least 4 years. So why give the bank more money out of your pocket?? And as far as a home value depreciating...The greatest asset in the world is Real Estate...Have you ever heard of Donald Trump?? JP Morgan? How about Levitt, Ginn, ETC ETC The stock market has never had the increase in profits like the Real Estate industry. NOT EVEN CLOSE..TIME is the greatest asset..
Posted by: Jay Van Paemel at 04/07/2009 11:04:18 PM
...I see she got their loan from Countrywide. (By the way, what happened to Countrywide?) When are people going to realize that real estate doesn't ALWAYS appreciate? What happened to the good old days of saving your money until you had a 10 to 15% down payment and then amortized the balance over a reasonable period of time of 25 years?...
Posted by: Scott at 04/08/2009 12:22:37 AM
Interest-only loans are not the problem. LTV (loan-to-value) is the problem, regardless of the loan structure (IO, ARM, 30-yr fixed). I have a 10-yr interest only loan but when I took it out in 2007 I financed at 50% LTV. When my home value went from $330k to $270k, I didn't sweat it. When I sell my home in 7 years--before I have to pay any principal--I'll make a tidy profit and won't have wasted a dime in principal. All the money I save on principal is put in an investment account. In 7 years, I'll be much, much better off financially than if I had a 30-yr fixed loan... Pick any 30-yr period of time and almost any real estate market in the country, and almost without exception you will find one result: real estate prices appreciate at 0.5 to 1.0 percent above inflation. Any smart investment pro...knows that real estate is an inflation hedge...
Posted by: Eric at 04/08/2009 02:28:51 AM
This article does a good job of illustrating the problems with the housing bubble....Planning your future (or determining risk) assuming 10% annual gains in real estate is not a good strategy for an individual or bank, especially (if) they put themselves in a situation where they are unable to weather a downturn...
Posted by: Matt at 04/08/2009 07:52:11 AM
...I bought a house 6 years ago, shortly after I turned 21. It was drastically more house than I could afford at $162,000 and I didn't manage to put (down) 20%. I was able to put down $20,000 however and get a fairly attractive fixed 30 year rate of 6%. What that meant is that even paying extra principal when I could 6 years later I was still paying PMI. I understood and accepted that, being young with an income that barely qualified to cover the payments I was certainly a high risk borrower... So over those 6 years I paid the extra when I could, had friends from college live with me as roommates to help cover the payment and lived as absolutely dirt cheap as possible. 6 years later I just closed 2 weeks ago on a refinance for a 15 year loan at 3.875% that had a net change on my payment of an additional $30 or so. While I feel sorry for Mrs. Jacobson and her family, I have to say her plight is...her own...
Posted by: EZ at 04/08/2009 09:50:08 AM
...Risk is taking bad with the good. You can blame the blackjack dealer in Vegas for all your losses too... or the bad run of cards... but it still wont change the risk you knew going in playing the game. If you start limiting risk by compensating losses, there will be no rewards in the future. Just as we see now in the banking industry by limiting the credit...
Posted by: Jimmy at 04/08/2009 10:23:09 AM
Solution: Stay in the house and make your payments....Every homeowner in America has taken a hit in this economy...
Posted by: Ken at 04/08/2009 10:49:40 AM
...The whole idea of risk homeostasis is at play here....These folks need to either 1) stay in their (beautiful) home and work to prevent their neighborhood from deteriorating further, or 2) give the house back to the bank and rent something. Either way, YOUR PRIMARY RESIDENCE IS NOT AN INVESTEMENT. It's your home. My wife and I have a 30 year fixed and are working to own it outright in 15....
Posted by: James Nitz at 04/08/2009 10:58:56 AM
Now, hold on people....real estate is traditionally a good move. However, it is still an investment that carries risk. I also don't see how this is a difficult situation though. Your investment tanked. Big deal - it happens all the time. If you want out, liquidate your other investments (401k, kids college fund, etc.) and pay for your move across town (although, I would highly suggest you move out of town completely - how do you know "across town" will be any better in 12 months?)....Do you really want to own another house right now anyway?...
Posted by: Joe R at 04/08/2009 11:39:52 AM
...Whatever happened to "it's not the size of the dog in the fight, it's the size of the fight in the dog?" (Twain) Buck up and get to work.
Posted by: Alejandro at 04/08/2009 01:44:54 PM
... What we should be discussing is how the government is screwing us out of our tax money...
Posted by: WG at 04/08/2009 02:08:11 PM
While I feel sorry for her plight, she is a real estate agent and should have known about the drawbacks of an interest-only mortgage....No one is helping me with the decline in my IRA or 401k...
Posted by: Laura Cohn at 04/10/2009 12:07:29 PM
Thank you for your comments. We love hearing from our readers. As the writer of the piece, I wanted to weigh in. Our intention was not to portray Michelle Jacobson as a victim. Instead, we hoped to present her story as an example of someone facing a financial challenge. As one reader said, real estate has traditionally been a good investment. The other thing is, as the recent past has shown, real estate experts--be they local or national--don't always possess perfect crystal balls. Even the nation's top economic officials didn't see this coming. The good news is, since we wrote this story, there have been nascent signs of life in the housing market. Perhaps, as some economists are saying, we've finally reached a bottom.
Posted by: Kevin at 04/12/2009 04:24:57 PM
I scanned the comments and would summarize the responses as ... "it is her problem, the government/taxpayers should not bail her out". Without loan modification, the only other alternative to foreclosure is short sale. Taxpayers will pay the short sale and foreclosure shortage via bank bailouts. Clearly the best solution for Michelle AND taxpayers is loan modification....
Posted by: T at 04/12/2009 09:08:09 PM
MJ is indeed facing a financial challenge but she is also a victim...My advice is that she should look at ways to increase her income - such as working extra hours or even baby sitting. Every dollar helps. She might consider renting a room out to a student. That can be a win-win situation with the right tenant. I would also advise her to clearly distinguish between need and want. Start paying attention to where gas is a few pennies cheaper and buy from there. Maybe they can make do with one car rather than two. Perhaps now isn't the best time to be paying for piano lessons or other after school activities. Rome wasn't built in a day...Cut expenses, increase income...
Posted by: Michelle Jacobson at 04/13/2009 01:16:44 AM
Hi, I'm the subject of this profile. I probably should not respond to the judgmental comments made by Kevin and T. I have never asked anyone for help, quite the opposite I have always paid my own bills and I have a perfect credit score to prove this. As for working more hours (like babysitting), both my husband and I are blessed with good jobs. We have no problem making our payments and we have never been a drain on society. My issue is we are on an interest only loan and because of all the people who have not been blessed like my husband and I have financially, we are "underwater" on our home. We bought a home that was/is well within our means, however due to all the irresponsible people in the world our value has dropped. Therefore Mr. Kevin, you should not jump to conclusions. Next time don't scan the article but try reading it. My reason for doing this article was to bring attention to those of us who are not asking for handouts but are looking for a fair solution....
Posted by: Michelle J at 04/13/2009 01:44:10 AM
I wanted to say one more thing, after reading all (the) comments...My husband and I have NEVER asked for any bailout. We CAN afford our home and as for our upgrades, at the time our home appraised at 1/2 million dollars. Getting a pool was our decision and one that I don't regret...We refinanced our traditional mortgage into this loan by Countrywide due to the fact that we planned on selling in 5-8 years anyway. This way we could invest more money for the future. We had no way of knowing that the market would crash and my home's value would drop like it did. However as for any of you paying my debt, that is far from the point of this article. As I stated, I make very good money and have no problem paying my bills or my car payments. My issue is that I am tired of my tax dollars paying for all the mistakes our government has made...due to my strict values I have not walked away from my home and I do take my obligations very seriously. So as I stated in my last post...read the article...I am not the enemy and I am not asking to be a victim, I just wanted to let people in the same situation know they are not alone....
Posted by: LaurieC at 04/15/2009 05:43:26 PM
Michelle, thank you for bringing this point forward and I appreciate your dedication and commitment to honoring your agreement to pay your mortgage even though you currently owe more than your home is worth. I have purchased three homes in my life. The first two were worth less when I sold them than when I purchased them-I lost a lot of money and the country was not in an economic crisis. My point is, I agreed to pay $X for the home, regardless of what happened to the real estate market....and that is exactly what I did. I think many people don't understand that is what they are agreeing to when they purchase a home. None of us know what is going to happen to the real estate market, so believing that the value of a home will go up significantly is a gamble. You might as well go to a craps table at a casino if that is what you are counting on. What I would like to bring to the attention of Mr. Obama and the media is there are many people (two of whom work in my office) who make very good money and are simply quitting paying their mortgages because their home has decreased in value. This behavior is compounding the problem we are having in this country. I believe that if my co-workers are doing this, many more are doing the same. I find the actions of these people unconscionable and I feel that they are responsible for the deepening of the financial crisis in this country...If you are not willing to make tht commitment; rent, don't buy.
Posted by: stuck paying in NY at 04/18/2009 02:12:32 PM
Hi Michelle, My home was worth over $420,000 just 1 1/2 years ago when I took out a second mortgage and now is only worth $301,000. I planned on staying in the home for at least another 10 years (we have lived here for 26 years). Both of my mortgages are conventional fixed rate mortgages, my first mortgage is $284,000 at 5.85% fixed and the second is $77,000 at 8.999% fixed. I have no problem paying my bills at this time and have NEVER been late but I called both mortgage companies after hearing about the very low interest rates that people who were behind in their payments were getting because they bought I house they truly could not afford. I was told that I could not refinance because I now owe more than the house is worth. Why is it that the responsible people who pay their bills on time are stuck paying higher interest rates when the irresponsible ones get the breaks. I also do not qualify for the Making Home Affordable program because I am on time with my payments.
Posted by: vegas homeowner at 04/18/2009 03:54:38 PM
I feel your pain as I also bought at completely the wrong time in Vegas. We thought we were doing right by catching the market as it was dropping but it dropped even further since. Our house is now worth $150,000 less than we paid for it! Ugh! We were hoping to move in the next year but that isn't likely if we have to pay that much out of our pockets to our lender. We make good money but don't have that as spare change. It's horrible and makes you hate your decision and your house. It really stinks!!
Posted by: darly2004 at 04/23/2009 06:23:32 AM
Michelle, I can understand where you are coming from. I am in a similar situation that you are in. I purchased our home in 2004. It was a home that we can afford (~25% monthly payment of our net income). The main difference is we do have a 30 year fixed mortgage so our payment won't be changing any time soon. Unfortunately due to the current economic times, our home value has dropped ~$100,000 due to the foreclosures in our area. Therefore, we do not qualify for the current refinancing or loan modification plan. It does make me angry at the people who have been irresponsible with their money have put us in this situation in the first place. I take full responsibility for buying the home and do not plan to walk away from our home, but do these people get the breaks? First off, the loan remodification plan... these people have bought beyond their means and were not paying their mortgage, yet they get to reduce the amount of their mortgage? Then there's the refinancing situation... the people in the hardest hit areas are not being helped out. Just because my neighbors have been irresponsible and foreclosed on their homes, it disqualifies me from getting an interest reduction. Lastly, the tax forgiveness on short sales... once again, people who bought over their heads or made home renovations they couldn't afford, get the breaks. My husband and I live within our means, saved for retirement (which, by the way, lost over 30%) and our daughter's college, have an emergency fund, but we get no breaks because we are responsible with our money.
Posted by: RealityCheck at 04/26/2009 03:39:33 PM
When I bought my first house back in 1987, I read books on mortgages and real estate so I could learn how the mortgage financing works and make an informed decision. I bought a house I could easily afford at 1.6 times my income at the time....The ones who thought they could refinance out of the mess they created imply that they have a crystal ball and know that they will be able to refinance because they know future prices, interest rates, and underwriting standards will still allow them to do so. If you really know future prices, why not just make a quick fortune in the stock market and buy a house with cash? The only people who I have any sympathy for in this mortgage crisis are people like darly2004 who were responsible and did the math to figure out what they could afford and lived within their means, but had to pay a higher price for their house near the peak of the bubble because they had to compete against (those) who were using the interest only loans and negatively amortizing option ARM’s to bid house prices up to unsustainably high levels. I notice this woman in this article says she and her husband will not need a bailout, yet the article says they will not be able to pay off the 10 year interest-only loan in 4 years....First these people use creative financing schemes to drive up home prices for everyone else who was buying at the time...and now, these people want their more responsible neighbors to pay higher taxes to bail them out from the consequences of their...decisions....
Posted by: Raj at 04/29/2009 05:26:50 PM
I am in a similar situation where I bought a home for $325K, put $70K down. Presently the home is worth $140K. I owe $250K on this house. I see no sense is paying the loan since I can purchase the same house for $700 a month mortgage instead of the $1750 that I am currently paying. I made a truthful purchase and intended to keep the house for years (hence the 20% down-payment), but the lending practices have made me sick. My neighbors, who have foreclosed their houses, were given loans that amounted to 80% of their gross income. This harakari was committed by the same banks which led to the home price inflation in 2005 and I don't intend to pay for the bank's mistakes (or selfishness). Hence, I intend to stop making my mortgage payments. I dont have any other loans and even though it would impact my credit score (which is in high 700s as well) I dont care as the cost of keeping my credit score is too much. Moreover, I have relatives who can purchase a home for me.
Posted by: J at 05/06/2009 09:22:21 PM
To all who have asked the question, "Why do the irresponsible people get the breaks and the responsible people have to keep paying?" Welcome to the Democratic Party...
Posted by: unreal at 05/15/2009 05:03:58 PM
Problem statement in the article - "we could lose our house". It is not your house. The money they spent for house & upgrades was $336,000. They owe $364,000. What part of "you don't own a house" don't you understand? You don't even own a doorknob or a plant in the yard. This, my friends, is the problem. You don't own the house until it's paid. This woman & her family have been renting. They don't own anything. Put in $336,000 & owe $364,000...No sympathy here.
Posted by: Erk44 at 05/18/2009 10:59:33 AM
In response to "J": it is not the democratic party's fault that this mess has occurred. It infuriates me that the democratic party gets blamed for crap that happened as a result of the easing of restrictions on "creative banking" and the GREED of those in power at the time: republicans!!! Where have you been? GREED is what got us here!!
Posted by: realist at 05/21/2009 01:57:35 PM
The cause is banking deregulation that began under Ronald Reagan and has been perpetuated by every administration since.
Posted by: Sam at 06/19/2009 09:35:57 PM
How about the obvious? CONTINUE TO PAY THE MORTGAGE AS IT STANDS. Just because it is underwater doesn't mean that people are in jeopardy of foreclosure!! There is this perception that "underwater" is another word for "foreclosure". It isn't and people can keep there homes, with the SAME payment despite the value -which changes day by day.
Posted by: christy at 07/03/2009 02:03:47 AM
...My husband and I are in almost the exact situation as well. "Just pay the mortgage as is" sounds great when it's not you who is in a lose-lose situation. How would you like to throw your money away every month with no light at the end of the tunnel? We bought with the intent of staying for awhile, but not being stuck forever. It isn't fair that the government can help those who can't pay, but can't help those of us who are on time and presently can afford our payments. We didn't ask to be stuck in our houses and be paying 2-3x as much as our new neighbors. There has to be something out there to help us.
Posted by: darly2004 at 07/21/2009 04:41:45 AM
...I understand that the housing market follows cycles. Sometimes you buy when it's high and sometimes when it's low. It's all a matter of timing. I bought our house earlier in the game, not even at the peak, and it still lost over a hundred grand. I just don't understand why lenders cannot allow refinancing for everyone rather than having this ridiculous 105% of your appraised value cap. This is causing many people who can pay their mortgage to walk away because it's sick to see yourself just throwing your money away.
Posted by: tynkerbelle at 08/11/2009 04:24:30 PM
every day people buy new cars. one year later they are upside down on their car loan. and nobody gives it a second thought and goes screaming to the lender "i want my money back!!!". what is the difference with a home loan?
Posted by: m. at 09/02/2009 04:25:42 PM
... You're complaining because your neighbor is paying less? My neighbor paid less for their Mercedes than I did. Should I complain? You agreed to buy the house at that price despite future market conditions...I'm currently buying a house at a price that I can comfortably afford. If neighbors move in next year and get a great deal, good for them. I'll still be happy with the house I bought at a price I could afford. I can't believe anyone who bought a $500k house is complaining...
Posted by: Mike C at 09/04/2009 08:52:24 AM
There are millions of us (upside-down, no refinance hope, serious hit to net equity) in the same predicament across the US, some obviously worse than others. The issue is that we lacked the foresight to anticipate such a rapid decline in home values. It was a risk we took when we purchased; it is a risk the lender took when they lent. My opinion is that the government should not have to help us (although they are helping others more risky), rather the FI's should decide if they want to assist us to lower their risk of defaults. As well, we need to determine if default is worth the risk of a ruined credit rating (and if we will be able to walk with our backs straight). Some of us have what we need and don't have auto loans, no personal loans either, we don't have credit card debt, (I know some of you are thinking we refinanced that back into a HELOC) but what we do have is a mortgage with more debt than imaginable due to home slides. To me, this is an interesting discussion. Thousands of people default on obligations every day. The nature of the possible default is clearly rattling some; while others, the amount of money is just too significant too pass up the opportunity to ruin their credit but begin again.
Posted by: fish in the sea at 09/14/2009 06:10:52 PM
Hey I'm in the 'whining' boat as well and why not? My house is underwater because it had an inflated appraisal 7 years ago when I bought it and now I have to 'live' with it while my new neighbors are paying less than what I currently owe? They are under a new value system now because of predatory lending, scamming, greedy banks and brokers and now I'm being asked to be o.k. with paying on a house that isn't worth what it was. Sure, markets flucuate but this 'flucuation' was due to greed, greed and more greed and as far as I'm concerned if there isn't a remedy to balance the market ENTIRELY than it's still all about MORE greed! I can afford my house back when I bought it and can afford it now but I agree that it's throwing money away. I would love to take advantage of liquidating more money per month as would others but can't because of greedy, selfish people! I don't blame anyone who walks from their home---as a matter of fact I predict there will not be an end to foreclosures anytime soon...
Posted by: Brian at 09/15/2009 09:41:59 AM
In the end, you have to do what is best for you and your family... both financially and emotionally. Does it make sense for you to continue to give money to the bank for a house that is no longer worth near what you owe? Does it make sense to stay somewhere that might not be safe for your family, or at the very least isn't making you happy and causing unnecessary stress? Since you can't sell and can't rent, your only real options are to ask for a short sale and ask the bank to write off the difference, or if they refuse (which for some strange reason banks do), you can walk away. If you walk away... at least you can withhold a few months payments to help with the transition until the bank tells you to leave. The only issue with this option is that, depending on state laws, banks might be able to come after you with a deficiency judgment after the foreclosure depending on what they get for your home. You might need to figure out how to protect yourself from that. Some people have the option of bankruptcy for protection. Just remember... regardless of why you are in this position (industry greed, inflated appraisal, bad decision by you), this is a business decision. You have to think about your future, your retirement, your family. That is how the banks look at it when they make their decisions. So just ask yourself: Does it make more sense for us to start over with our credit, be free of this weight, and feel better about where we are, and be smarter with our choices? Or should we stay in this house for another 10 years until the market turns around in order to break even and save our credit? In my opinion... it's an easy choice.
Posted by: AGH at 09/26/2009 07:06:34 PM
...why on earth do you need a $40K pool with a waterfall?......if you can't pay cash for DESIRED improvements, you can't afford them...a house isn't an "investment" it's a place to live with your family...for 30 years...it's a marathon, not a 5K...be patient
Posted by: Moe at 09/30/2009 05:03:51 PM
Wow! Im flabbergasted to say the least. Brian are you actually suggesting that people should welch on the promises they made to repay their home loans? MANY if not MOST of these people pulled cash out for FRIVOLOUS home improvements, no one NEEDS a 40K pool, or stone floors, those are wants. Or better yet they pulled cash out to go on vacation, or pay off credit card debt. So basically what your saying is that hey, you don't want to pay your bills anymore so just don't. When the stock markets crashed i lost 100,000, it was terrible. Who's fault was that? Mine, I bought overpriced stock and it fell. Thats how your house works too.... Equity is an immaginary thing and it only exists when you actually sell your home. No one promised ANYONE that their home would go up in value. Im sorry that yours went down. The problem with American today is US, it's american's and our buy now pay later keep up with the jones mentality. I love that people that make 50K a year think that they should own 350K homes.... No 50K means your making it in most places, not that your rich. Quit blaming the bank and take some personal responsibility. PS current lending rules require a minimum of 5 years distance from a foreclosure. Even then lenders will be skeptical of your file...
Posted by: crimson at 10/07/2009 08:24:58 PM
in response to Moe's post on September 30, 2009 05:03 PM I make $50,000 a year. bought a $116,000 house... well within our means...paid it down to 88,000 in 3 year's time..because we wanted to get it paid off early....did not make any improvements on it.....Husband lost his job. Now we are facing a short sale, deed in lieu or foreclosure. Trying to pay down our mortgage above and beyond the minimum monthly requirement is getting us nowhere in the deed in liue negotiations. Now YOU tell me where we were wrong!!! We did not buy any 40K pool. We drive old cars, we buy about $200 in clothing for a year...We buy Ramen noodles and beans and rice so we can have money for paying down our mortgage. We have no balance on credit cards....We live the American dream! riiiiiiiiight!
Posted by: CB at 10/20/2009 12:52:28 PM
I bought my house in Florida in 2004 and the market was high. After a year the value went up about 30% and we had some credit cards that we wanted to get rid of so we refi for its worth at the time. Now we are paying $1900 a month and the house is worth $120,000 and we owe. $213,000. We cant refi as theres no equity. Im having a hard time with a growing kid keeping up with the payment and we both have credit scores around 780. Any advice on what we can do? Oh yeah our bank says they can not modify our loan as we pay on time and are not in default. Basically in screwed right??
Posted by: pb at 10/28/2009 12:26:20 AM
Well, as I realize the my family is in the same bind as many, but like CB, we did everything right. Paid our bills on time, reduced our debt, bought an investment property at a decent (not obnoxious)price 3 1/2 years ago and until 2 weeks ago, rented it out. Now, my husband doesn't have a job and we still have 2 mortgages, a kid in college and at least 1 home...by virtue of the tons of foreclosures in surrounding neighborhoods) that is valued at less than we owe on it. Because we are current on our mortgages and other bills, it appears that we're not struggling. Well, why does this american dream not feel quite like a pleasant dream? The mortgage company says, you have 2 options; try for a refi to reduce payments (only slightly) or extend the 30 year loan to a 40 year loan. Why the heck does that make sense? We're feeling a bit penalized for doing (or trying to) everything right. What do we do now that one income is gone and the mortgage company doesn't seem to have any real help? There are many who say "you have to miss payments for 3 months, then they'll work with you"; still others say, walk away, it's just your rental property. Well neither of these seem to be reasonable options to me. We are trying to rent it, but there are tons of other properties out there with which to compete. What do we do?
Posted by: J at 11/12/2009 12:48:58 PM
We have seen the havoc from foreclosures of people unable to make their payments. We are getting ready for the bubble to pop on commercial real estate. What I don't think we've felt is that portion of the public who wakes up and says "why am I continuing to pay a monthly payment on 250k when the asset is only worth 125k? When I do the math, even at 5% appreciation every year (which is VERY unlikely), it'll be 12 years before the value equals the mortgage" The truth is the prices will likely never come back in places like NV and FL, so the banks are bailed out and YOU get stuck paying the mortgage. What is real estate worth? Is it worth anything without a bank willing to loan the money to finance it? Be very skeptical of banks who, after taking the money, now say "Do the right thing and continue paying for this because you gave your word."