Underwater Mortgage

Approximately 25% of all homeowners have an underwater mortgage and that figure is expected to almost double in the next few years. That does not mean that there has been a surge in sales of homes and property located deep beneath the sea. An underwater mortgage simply means that you owe more on the mortgage than the market value of the property.

It was only a few years ago that buying a home was one of the best investments an individual could make. Property values were rising every day and you could quickly build up equity in your home. Getting a mortgage was very easy in what was a very strong housing market. You never heard about a family member or friend being stuck with an underwater mortgage. In fact, you were very likely to hear of a friend who was able to get a mortgage with almost no money down, hold on to the house for 6 months and then sell the house for a huge profit. The lucky homeowner paid off the mortgage and either pocketed a large sum of cash or invested in a more expensive home with plans to sell it for another big payday in just a few months.

Well, something went wrong with the plan. The housing bubble burst and suddenly the market value of houses dropped, sometimes by as much as 50% or even more. Many homeowners got caught holding a mortgage that was now higher than the value of the property. For instance, if you had purchased a $400,000 house and put down 10% and financed the rest, you would have a $360,000 mortgage. If your house was suddenly worth only $200,000, not only were you stuck with an underwater mortgage of $160,000, but your $40,000 down payment was as good as lost.

Whether it was rampant speculation, greed, lack of regulation or any other reason, the problem that was created has put a stranglehold on our economy. Until a solution to the more than 10 million homeowners currently in possession of an underwater mortgage is found, we will continue to have a very sluggish economy.

Solutions are not easy. Many people have decided to simply walk away from an untenable situation despite ruining their credit. Others will file for bankruptcy. Trying to renegotiate with the bank or getting a loan modification is very difficult. You can try a short sale or maybe just stay in your home if you can afford the mortgage payments.

Hopefully, those in power will finally realize that the underwater mortgage is the reason why so many Americans are suffering. It certainly has an indirect effect on the high unemployment rate and it drives down the value of all properties, including those that have no mortgages. It is okay to be optimistic, but the way things look today, it may be a very long time before mortgages will be in balance with market value.