Underwater Homeowners - Scenario #1
March 3, 2010
According to a report released in February by FirstAmerican CoreLogic, nearly one-fourth of all Americas with a mortgage owe more than their home is worth. Once a borrower owes more than the value of the property, there are decisions to be made. The federal government has been attempting for over a year to deal with these "underwater" mortgages, but thus far, none of the programs seem to have alleviated the problem.
Scenario#1 is one in which the overall financial situation of the borrower has not changed since the mortgage was first obtained. The borrower has the same income and is still able to make the mortgage payments. The borrower really likes the property and would like to continue to live in it. While it may seem to be a poor financial decision to continue to pay when you have negative equity, in the long run it may be a wise choice. Your credit remains in tact, your payments will credit toward the principal balance, you do not have to pack up and move and any place to rent may be far less desirable.
If the future resembles the past, sometime in the latter half of this decade, your property will recover its former value or even exceed it.
Even in this scenario, you might contact your lender and see if you might be eligible for either a loan modification or an interest rate reduction. Participating in either of these programs may effect your credit, but probably not to the extent that a short sale or a foreclosure would.
This is not the first real estate downturn that created "underwater" borrowers. The severity is probably due to the use of 100% financing. Back in the downturn of the 1990s, a 3% down FHA mortgage, created underwater borrowers. In time, those that were able to stay put, recovered equity and then some.
According to a report released in February by FirstAmerican CoreLogic, nearly one-fourth of all Americas with a mortgage owe more than their home is worth. Once a borrower owes more than the value of the property, there are decisions to be made. The federal government has been attempting for over a year to deal with these "underwater" mortgages, but thus far, none of the programs seem to have alleviated the problem.
Scenario#1 is one in which the overall financial situation of the borrower has not changed since the mortgage was first obtained. The borrower has the same income and is still able to make the mortgage payments. The borrower really likes the property and would like to continue to live in it. While it may seem to be a poor financial decision to continue to pay when you have negative equity, in the long run it may be a wise choice. Your credit remains in tact, your payments will credit toward the principal balance, you do not have to pack up and move and any place to rent may be far less desirable.
If the future resembles the past, sometime in the latter half of this decade, your property will recover its former value or even exceed it.
Even in this scenario, you might contact your lender and see if you might be eligible for either a loan modification or an interest rate reduction. Participating in either of these programs may effect your credit, but probably not to the extent that a short sale or a foreclosure would.
This is not the first real estate downturn that created "underwater" borrowers. The severity is probably due to the use of 100% financing. Back in the downturn of the 1990s, a 3% down FHA mortgage, created underwater borrowers. In time, those that were able to stay put, recovered equity and then some.
posted by shirley harry at 7:12 AM
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