Under Water

Again today I heard a pundit talk about voter dissatisfaction, and what caught my attention was the reference to those voters who were “underwater”.  The reference was to those who bought homes in the run up to the housing bubble, and now found themselves with mortgages larger than what they think they can sell their homes for.  Should I feel sorry?

Well clearly I do not and no else should either.

I can image these people saying “I had no idea the house would decrease in value”.  For sure, most of us only remember days of increasing house values.  In truth there have been periodically years when house prices did not rise much and even one or two years when prices fell.  The facts were price declines were short in duration and always erased quickly.  Why will that not be the case today?

Past performance is no guaranty of the future may apply here.  Never the less, I fully expect inherent housing values to rise again and in time make up for any lost appreciation.  There may be some who must wait a longer time and probably there are some who just blew it on the purchase and instead of a home got a dog.  That’s life.

Home owners should be being advised to stick it out.  Don’t walk away from your mortgage.  Don’t walk, that is, because of being underwater.

There were two phenomena, however, in play during these past few years.  One, house price were way over valued (and still people bought assuming they could sell if they wanted).  Second, interest rates were attractive but some were booby trapped.  These dangerous mortgages had reset options that put a prospective home owner into a house with a low interest rate (and therefore a low monthly payment).  After some period (like 1 or 2 years) these mortgage interest rates reset (to something much much higher).  Here’s double trouble looking at you.

So, from my perspective if you are dealing with a snake (short hand for the banks that peddled these “teaser” loans), and if you have the chance to choose freely, walk away and smile about it.  But anyone who walks because the house is underwater, I say you are a fool.  Negotiate with the bank about a reasonable interest rate and walk if they refuse to negotiate in good faith.

What is clear in all cases, however, is that ones vote in the mid term elections should be pure and free of any taint from underwater mortgages.  Each person who entered such a deal did so voluntarily.  It is fair to ask if your congress person has a person on unfair bank practices and whether they have acted to make things fair to the home owner.  My guess is that you have not seen any commercials saying anything like this.

 

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Tags: congress, mid term election, mortgage, teaser rates, underwater homes

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