For just over two years, home foreclosures have swept across the nation leaving misery in their wake. Among them were many once happy families whose lives were forever changed. Now, a bigger problem may be in the millions of Americans who are still faithfully paying their mortgage payments. These are mortgage payments on homes that are worth far less than before the housing bubble burst.
The worry is not in these homeowners not making their payments, it's completely opposite. Because home prices are so low in much of the country, mortgage payments that are underwater could end up absorbing billions of dollars that may need to be used for other forms of consumer spending. This could cause a drag on family finances that could last for years.
There is currently an estimated 15 million underwater homeowners, with around 7.8 million of them owing at least 25% more than their properties are worth. Many homeowners are paying much higher interest rates than the latest national average of 4.25%. A plus is that most still have jobs and can afford to make their payments.
Many of these homeowners can't refinance because they owe too much on their mortgage. Most ordinary loans are impossible to get and selling the home will be a huge loss, so that would be out of the question, too.
Most underwater borrowers cannot take advantage of the Treasury Department's loan modification program, which requires the loss of a job or some kind of hardship. The real estate market is hugely dependent on homeowners being able to sell and move up. Without this, the trade-up market cannot grow.
We'll soon start seeing new roof delays, which would deprive a local roofer of business. Delays on kitchen or bath upgrades, which all hurts local businesses. Before it's over, everyone from car dealers, clothing manufacturers, consumer electronics and the local handyman will be effected. Many homeowners will also become more cautious of where and how they use credit cards to pay for necessary items and family vacations will be put on the back-burner for too long.
When you multiply such sentiments by millions across the country, that translates into lackluster private spending, which accounts for 70% of the nation's economy.
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