Homeowners Swimming Underwater in Uncharted Territory

"We all participate in weaving the social fabric; we should therefore all participate in patching the fabric when it develops holes."      ~Anne C. Weisberg

It's hard to walk by the newsstands or turn on the TV without hearing more about the current housing market with underwater mortgages heading the list.. The blame starts at the top with government policy and is followed all the way down to lenders, homebuilders, and speculators - right down to the homebuyers. But, regardless of how the housing bubble got so big, most thought that it was destined to burst. 

Now we are seeing a disturbing number of homeowners who feel as if they are drowning in what started out as an American Dream - homeownership. Some are fallout from the subprime mortgage meltdown, others took out too much money in home equity loans during good times, but many others simply own homes in neighborhoods where the home values have declined. Unfortunately, this is almost everywhere!

It is now estimated that over 10 million American households have "underwater mortgages", meaning the property is worth less than the mortgage. Complicated by the economy, high unemployment and other factors, many of these homeowners can't take advantage of lower rates or refinancing deals. Many can't move or sell and their homes are destined to go into foreclosure.

No one buys a home thinking that one day they will be forced to leave or walk away. But in the wake of the past few years, millions of Americans are finding themselves in just that position. How did it ever come to this? Can you imagine waking up one morning feeling as if the only option left was to "walk away" from your mortgage, your home and dreams?

If it were just a purely financial decision, it would be easy, but it's not. Many are truly attached to their homes that have become part of their lives, and they feel part of their community.  And there is the moral aspect of walking away from a contract or financial responsibility. Even President Obama has stepped in urging homeowners to follow the "responsible" course. So this becomes a deep and complicated matter which is effecting millions of Americans.

The past few years have brought about circumstances forcing large numbers of good, honorable people to lose their homes. In some cases, walking away becomes the only viable option- maybe they lost jobs, or are facing insurmountable medical bills or things of this nature. But further complicating the subject are the growing numbers of those who are choosing to walk away even when they can make the monthly mortgage payments.

It has been estimated that 1 in 10 people with underwater mortgages are making the choice to walk away from their mortgage contracts. This is called a strategic default and is made on an economic level. They are willing to take the hit morally and financially in order to walk away and rid themselves of an overpriced mortgage. They are following in the footsteps of companies such as Morgan Stanley who did just such a thing on a much larger scale, walking away from 5 properties in San Francisco that were underwater. [No one has reported Morgan Stanley as being immoral]

Here are 4 good articles on the subject if you find yourself in the position of being underwater on your mortgage. Articles byLiz Pulliam Weston (MSN Money), NPR, ABC News, The Washington Post  all do a good job on covering all the aspects of what to consider if you think walking away is the answer to your problems.  Pulling out of your driveway and mailing back the keys may not be the end of the story.

On the positive side of this subject some lenders are willing to "work with" the borrowers rather than face a default. Some are even paying homeowners to keep up with mortgage payments. The government currently has a plan offering banks incentives to reduce payments. Working towards solutions and helping keep Americans in their homes will benefit our communities and us all.

Expect Rachel Valentino, DC area real estate expert,  to be on top of the hottest topics. If you are in the market for a new home in the DC area call her today or visit her website "The Atlantic Coast Connection". Let her expertise deliver the results you are looking for.