Boo-Hoo.
It's really hard to work up any sympathy for buyers of $500,000+ properties who can't finance them conventionally.

The next thing needed is to limit the mortgage deduction to the FIRST and only the first home purchase made.

Jamie,

Do you know if the new HARP quide lines recently revised by President Obama would assist a home owner who has a CDA loan that's FHA insured? My situation is this, I got my home 4 years ago at 6 1/2% using a CDA loan that also granted me a 3000$ no interest 2nd loan under the Maryland DSELP program. I have a home now that is way underwater, I’m paying 6 ½% and in the past I haven’t been able to refinance because I’m so underwater. I am able to make my payments, so I’m not a troubled home owner.
I have a home in a Baltimore city community (Mount Clare) that I could purchase today for almost half what I paid for this one. The house will probably never be worth what I paid for it, not in the next 15 years or more anyway. I don’t qualify for FHA stream line because it’s a CDA loan, even thought it’s FHA backed. I would like to move but I can’t rent the house because of CDA requirements that I live in the home. Even if I were able to rent the home, the increase in property tax due to loss of homestead credit would have me paying hundreds more than what I could rent the home for.
I am tempted to let the house go, simply because it’s not a good investment. I’m not happy in my community, so this weighs on my situation as well. I would like to be able to rent the house out, if I were able to refinance it to a lower rate and get out from under the CDA requirements that I live in it. I would keep the house as a rental instead of foreclosing simply to save my good credit. As it stand now, even though my credit may be shot it’s probably better to let the house go. The higher costs of Bad credit would probably be less that keeping this house.

If that *is* the cause of the $500-600K sales drop---why are banks still loaning at full (or at least nearly-full) value on homes that pricey? That size purchase shouldn't be approved without either cash or equity.

If we have to have the mortgage deduction, limiting it to the first one does seem like the next best idea.

Hi, allen -- I don't know whether HARP 2.0 might assist you (some of the guidelines still seem a bit unclear), but I encourage you to connect with a mortgage expert or a nonprofit housing counselor who could walk out your options.

Here's the housing counseling list for Maryland: http://hud.gov/offices/hsg/sfh/hcc/hcs.cfm?webListAction=search&searchstate=MD

It sounds like you've thought through your situation pretty thoroughly already, considering that you've accounted for the impact of the homestead credit. You're not alone in this dilemma, though I know that doesn't make it any less frustrating.

@allen - The best idea for you would seem to be:

1) let the house go, free yourself of the mortgage AND taxes AND upkeep. Upkeep is probably the big thing here that would prevent you from really getting a return on investment if you rented it out. It's expensive to keep good care of a big, nice house.

2) rent a house in the same community. once you stop paying your mortgage, you should be able to save thousands of dollars and pre-pay a bunch of month's rent, which should get you a sweet deal.