So what if people are "underwater"? A home isn't supposed to be a quick investment in which you make a tidy profit selling your house 5 years after purchasing it. A house is something you buy with the intention of living in it for the next 30 years or so. As long as you can afford your mortgage and aren't some scrambled-brain ninny that expected to turn around and make thousands of dollars by selling your house a few years after purchasing it, then why all the hand-wringing over negative equity? Incidentally, the people who are underwater yet can still afford their mortgages, but walk away and allow their houses to go into foreclosure are the worst of the worst in this whole real estate mess.

See Mark Fleming's quote above for two reasons why negative equity is a problem. If you can't sell when you get into trouble, it's hard to avoid foreclosure. (Also, though a substantial number of people do buy a home with the intention of living in it for 30 or more years, Americans tend to move every seven years. Whether you should buy a home if you plan to move in seven years is another question, of course.)

Question. What difference does being "underwater" make unless you MUST sell your house?

If you can still pay the mortgage, you sstill need a roof over your head, and you are not being forced to sell or take an equity loan, what is the problem?

"• The remaining 40 percent of the negative-equity crowd does have a home equity loan. Their average mortgage balance, including that add-on loan: $309,000, $84,000 more than their home's value. "

THAT is the problem, your home is not an ATM! Those who took equity loans are the only ones responsible for their predicament.

Curious, the main problem is if you must sell, something that has unexpectedly happened to a lot of people the last few years. (Others may argue that the problem is that these homeowners are paying a lot more a month than they would be if they were buying now, but that's a different kettle of fish.)

I think you'll find very little sympathy for the home-as-ATM crowd. But as you can see, it's not the only reason people end up underwater.

Jamie,
How does this relate to the rate of foreclosures over the last year? Are they rising or falling or staying steady, as well? Have you seen any lenders moving towards the model of foreclosing on the house, but renting it back to the owner?

Hi, Mary Catherine! The rate of foreclosure plummeted because of the robo-signing scandal but is showing signs that it could be rising (possibly rapidly) in the near future: http://weblogs.baltimoresun.com/business/realestate/blog/2011/11/time_needed_to_sell_all_mds_foreclosures_21_years.html

I've heard calls to rent back after foreclosing. I don't think that's being done in a substantial way, but there were stories in 2009 about Freddie Mac giving it a try: http://www.usatoday.com/money/economy/housing/2009-01-29-freddie-mac-rent-foreclosure_N.htm

I also don't see what people are crying about - your mortgage payment stays the same regardless of the value of your home - suck it up.

If you really need to move so badly than rent it out. It's not the end of the world

"THAT is the problem, your home is not an ATM! Those who took equity loans are the only ones responsible for their predicament"

While that is true there are a ton of people out there like myself who did the right thing and bought what they could afford and got a 30 year fixed loan and had to go with an 80 - 20 loan to avoid mortgage insurance. So all of those loans are listed as a "home equity" loan. In other words i did not use my home as an ATM i payed market value at the time and did the right thing with putting money down and getting a fixed rate yet i am 50k in the hole now.

Have you seen this new site Homes.com? It's like Zillow? You can see the estimated home value for your house. Mine was actually pretty accurate

http://bit.ly/tpQOXA

Zach, not sure if you're misspeaking, but if you did an 80/20, you did not put money down. Perhaps and 80/15, or 80/10? You may have shelled out several thousand at closing to cover closing costs, but that is not a down payment or "putting money down."

I'd be curious to see what percent are under water if you move the definition of under water to at least 10% positive equity. Due to the NAR/MAR playing troll under the bridge to the RE market, and state and local transfer/rec taxes, title companies that use cartel practices to inflate title insurance by a factor of 8, and mortgage originators who are also cartelized and benefiting from limited competition, you need about 10% equity in your home just to avoid writing a check at settlement as the seller.

And for anyone who did do an 80/20 with seller paid closing costs, or those bogus FHA circular grant repayment programs that functionally created no money down financing even when FHA's charter required a 3% down payment, while you may not have used your home as an ATM, you did get into it for less upfront cash than it takes to move into most apartments.

Restructuring underwater loans for borrowers who are current requires that the lender take a haircut or refinance the loan at a lower rate while ignoring the current value. Using your example of the $222,000 loan that is $52,000 underwater, this loan probably dates to the 2006-2008 period when rates averaged 5.5-6.5%.
If this loan were modified to current rates (4.5%) and the amortization period were shorteded by 5-6 years, the monthly payment would stay the same and the home would be above water in 5 years not 10. This should be done not as a refi but a simple note modification to keep the transaction costs as low as possible. This is a no pain fix that will reduce the mortgage holders income but also reduce the risk of future loss very quickly.

1st commenter- Hardly anyone lives in their first home for 30 years, that's ridiculous. People lose jobs and get new ones in different locations. Also they may have kids and then have to move out of the city to a bigger house. There are alot of resaons the average homowner has their house 7 years.
If you bought in 04-07 it maybe be 2020 before you're no longer underwater. Most of a monthly payment goes towards interest, taxes, and insurance.

Hi all
Let's say you have no mortgage and you bought the house in 2006 for $150k. Today, you want to sell and it is worth $75k. yes you can stay put, but it is hard to be happy about this. You jost lost $75k without going to the track.

However, what if you bought the same house with a conventional mortgage (20% down), but it lost 50% of its value. If you lose your job, have medical problems, divorce etc and can't sell at a price high enough to pay off the debt, foreclosure may be your only option, if you cannot qualify for short sale relief.

This is not just bad for the person loosing his/her house, it is cause for concern by all of us with an interest in the integrity and stability of neighborhoods. Foreclosures have a negative impact on the properties that surround them and the communities in which they are located. How long can banks continue to sustain the foreclosure loses? I wonder.

*sigh*

RENT YOUR HOUSE OUT