"Under water" mortgages are growing threat to U.S.

[Joanne98]

CAPE CORAL, Florida (Reuters) - Long before she filed for bankruptcy, Ann Neukomm was "under water" -- she owed more on her mortgage than her house was worth -- a situation more and more Americans are finding themselves in.

As the financial crisis hits Main Street America, nearly one in six U.S. homeowners are finding themselves in the same position, threatening the U.S. economy with a new wave of foreclosures and bankruptcies.

About 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006, said Mark Zandi, chief economist at Moody's Economy.com.

"At the root it's 'the' problem," said Zandi. "If you're going to put your finger on the one thing that's gotten us into this fiasco, it's the fact that millions of homeowners are under water on their homes."

If, like Neukomm, these homeowners go into foreclosure, it would add to the oversupply of homes, delay a recovery in the housing market, and add to pressure on banks.

Already, U.S. consumer spending is slumping as homeowners find they can no longer take equity out of their homes to fund their lifestyles.

In a slowing economy, it doesn't take much to push an underwater mortgage into default.

"When you're under water and you have some kind of hit to your income or some kind of unintended expense, that's when you default. And so now we've got this noxious mix of millions of people under water and quickly rising unemployment," Zandi said. Continued...

http://www.reuters.com/article/gc03/idUSTRE49L01S20081022

[wryter2000]

1. Waving my hand in Oaktown

My mortgage is under water. Luckily, I have a standard mortgage that won't adjust up. Also, I have no plans to move, even if I could. And, I had the good sense not to take the inflated equity out of it.

BUT, I had hoped to use the equity to get a reverse mortgage so I could retire. Thanks to the Repigs, I'm stuck in in my job now. (At least, I have it and it includes good health insurance.)

[Crazy Dave]

2. Well one thing has changed for sure

Both my grandparents lived and died in the same houses that both my parents were raised in. They lived in and kept their homes for 50 plus years. People just don't do that anymore. They live in a home five years or less and then try to "flip-it".

[tjwash]

3. I don't know about "flipping it", that's a very recent phenomenon.

The concept of flipping a house in 5 years is still pretty new, especially since you take a bath in capital gains if you do. I've always considered housing to be a long term investment which means you have to just suffer through tough times like what are happening now. It works the other way as well; as tempted as I was to sell our places when the market was hot, I stood pat and am really a little ahead of where I was right when the bubble started inflating.

Although I am seriously considering selling our properties and moving to a different state with a much lower cost of living when I retire.

[Crazy Dave]

5. That is more than likely what we'll do when we retire ourselves

The insurance, property taxes, utilities and maintenance are getting too high where I live and now that the kids are all grown and gone the wife and I don't need all the wasted space. A travel trailer or a little cabin somewhere in the mountains of Mexico sounds good to me.

[tjwash]

8. A nice boat docked in Costa Rica would be all right as well.

I'd fit in pretty well with all the retired gringos down there, and the wife and I both speak Spanish well enough to get by there...

[Occulus]

11. They probably had something called "job security"

There's very little of that to go around these days; you almost have to be ready to up and move at the drop of a hat anymore. :(

[slackmaster]

12. If I sold mine and bought another one of similar value, I'd get clobbered on property tax

That is a strong disincentive to selling.

[Warpy]

4. People with mortgages like that need to look at what rents are doing

More foreclosures mean more renters and that generally drives rents up. If the PITI is anywhere near what renting in that area costs, then it's very sensible to stay put and use that mortgage as a hedge against rising rent.

It's also time to stop looking at housing as an investment. It's a roof over your head and an address and those are worth a great deal, something anyone who has ever been homeless knows.

[Fla Dem]

6. How many of those homes "underwater" are owned by speculators.

I am so sorry for those homeowners who bought a home in the 2002-2007 period, when home prices were exploding. Many first time buyers feared if they didn't jump in NOW they would forever lose the chance of home ownership. That fear was exploited by realtors and mortgage companies. They would tell the prospective buyer the house would go up in value, and then sell them on these risky mortgages.

But there is also the speculators. I have a friend whose son owns 4 homes. All bought to flip. He can't make the mortgage or tax payments on them. He will walk away from them. There are realtors in my area who have gone bankrupt because they were buying up homes to flip. Those homes are now either foreclosed on or in pre-foreclosure.

This was the great Bush "Ownership" society. Fueled by speculation and deception. There should be some relief for those families who actually live in a "underwater" home. But absolutely no relief for the speculators.

[onethatcares]

7. yeah, we watched it on the left coast of florida,

people said my wife and i should get into flipping because it was soooooo ez to make money. Well, I'm glad we didn't. I've been in the same home for 30 years now, I'd miss it big time if I had to leave. I think it would miss us too.

Peace,

[El Pinko]

9. The mob mentality, speculation, low wages and high home prices of the bubble were the threat.

The underwater mortgages are simply the inevitable result. If our government had not actively encouraged and even depended on the housing bubble as a substitute for real growth, we would not be in this mess.

This is the inevitable result of a jobless "recovery" with stagnant wages for most and a casino mentality applied to what is SUPPOSED to be a domicile.

I will not support ANY government effort aimed at keeping house prices high. They need to fall back to the historical trend so that ordinary people can afford houses again.

[El Pinko]

10. The mob mentality, speculation, low wages and high home prices of the bubble were the threat.

The underwater mortgages are simply the inevitable result. If our government had not actively encouraged and even depended on the housing bubble as a substitute for real growth, we would not be in this mess.

This is the inevitable result of a jobless "recovery" with stagnant wages for most and a casino mentality applied to what is SUPPOSED to be a domicile.

I will not support ANY government effort aimed at keeping house prices high. They need to fall back to the historical trend so that ordinary people can afford houses again.


And there is no such thing as "taking equity out to finance a lifestyle". The expression "second mortgage" needs to come back into vogue because that's what it is.