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If Your Home Is Underwater, Should You Keep Paying the Mortgage?

Written by Gary North on March 13, 2012

Six years after home prices peaked in the USA, families are still trapped. It’s getting worse, month by month. They cannot sell their homes in order to take better-paying jobs.

Think of the couple that bought a home in the Los Angeles suburb, La Puente. They paid $415,000. Then they took out a second mortgage. They owe a quarter million dollars more than it is worth. They will not escape.

To get out, they will have to walk away.

Either a foreclosure or a bank-assisted short sale would, in the best scenario, stain their credit rating and make it harder to buy a new home in the next few years. So they continue to pay monthly into a mortgage where they have no equity.

They worry about bad credit. But they will never get out from under. They are on the Titanic.

A staggering 11 million homes are underwater. Those families are trapped. They cannot move to get better jobs.

Homeowners in underwater mortgages do stay put, a recent study shows. They are one-third less likely to move.

But they could.

In contrast, a report issued last month by an economist at the Minneapolis Federal Reserve concludes that negative equity does not reduce homeowners’ mobility. The report says owners can still move if they find tenants to rent the property, and notes that homeowners who are deeply in the hole are more likely to move and abandon their homes than borrowers who are only slightly underwater. Read the study by a Minneapolis Fed economist.

Retired people are trapped.

John Shore, age 62, said he would like to retire and move to the central coast of California but can’t because he has to make mortgage payments on a home on the outskirts of Fresno, Calif., that is severely underwater. Shore said Social Security wouldn’t pay him enough to keep up with his health insurance and mortgage payments.

Shore, director at the Community Housing Council of Fresno, a housing counseling agency, said that anyone who bought a home in Fresno in the past seven years owes more than their home is worth and about 65% of homes are severely underwater.

For more horror stories, click the link.

Continue Reading on www.marketwatch.com

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16 thoughts on “If Your Home Is Underwater, Should You Keep Paying the Mortgage?

  1. This is what occurs when people who can’t afford a mortgage are given “preferences” to obtain one. I noticed the author didn’t tell us what kind of work these people did when they obtained their mortgage. Thanks to FANNIE/FREDDIE there were lots of folks/couples who got an ARM at 2% and when the balloon came due they couldn’t make the 5-6% payments because both owners were working for McDonald’s getting minimum wage. Can’t make a $400,000 mortgage payment at $7.35/hr. They can thank their realtors, Barnie Franks and Maxine Waters… as well as themselves for this predicament.

  2. Stop all payments at once and save payments where the banks will not be able to find !

  3. I'm $100,000 underwater on my own mortgage. I keep making the payments. You have to live somewhere so it might as well be in an underwater house with good credit as opposed to a rental property with bad credit.

  4. CrustyOldGeezer says:

    Locate others in your communities and file a class action suit against the mortgage company forcing them to prove they funded the loan with "real money" and not an 'accounting method' that allows them to add zeros to their balance sheet and "Create Money" out of thin air.
    That's called Counterfeiting, and is an illegal act.

    Also, if your loan was with a now defunct mortgage company and the loan was 'assigned' to BOA or another of obamas friends, they will have no 'skin in the game' and you will not owe them anything.

    See the "Credit River Decision" here: http://www.hiddenmysteries.org/themagazine/vol14/

    And here: http://educationcenter2000.com/legal/credit_river

    "National bank v. Kesler": http://mortgage-home-loan-bank-fraud.com/articles

    In addition, mortgages are usually separated from the actual DEED HOLDER, and if your mortgage company does not have actual possession of the Deed to your property, you woe them nothing because they cannot prove ownership.

  5. Junk Bin says:

    yOU SIGNED FOR IT, YOU ARE RESPONSIBLE. tHE BANKS ARE STILL FORCED BY fEDERAL LAW TO MAKE WHAT ARE BAD LOANS. Buying a home is optional and a Constitutional right. Just as College is not a constitutional right. You go in debt, you pay your creditor period

  6. Crusty: You are right. Stick it to the bank who screwed people and then stickit to Obama, Dodd, Frank and Waters who caused all this illegal conduct to occur.

  7. CrustyOldGeezer says:

    No, the 'banks' altered the terms of the loans after the people signed. The destruction of the housing market was driven by the banks and mortgage companies that bought and paid for dodd, franks, obama, hairy reid, pelousi, teddy kennedy, john mccain, etc.

    "Buying a home" is NOT a Constitutional Right as you so wrongly stated.

  8. Nothing will change/improve unless we can get rid of the current corrupt administration in DC. They want people to be on welfare/food stamps/unemployment…..it's obvious they do because they have done NOTHING to improve the economy, only to keep taking it down. Insisting everyone have a house no matter whether they can afford the payments or not, is insane and it is not surprising the housing market crashed. The democrats pushing the Community Reinvestment Act for many years, is the exact cause of this mortgage mess. If we can vote these communists out in November, and the country begins energy production again, the economy will soon be humming and the housing market will improve quickly. When people can work again (whether they want to or not), it will be amazing how fast things will improve!!!

  9. It's not like you couldn't see this housing collapse miles away. You had those programs that showed people buying a house for 300,000.00 and painting a couple of walls replacing appliances that magically added 150,000.00 worth of value. So these people would buy two or three houses…or they would use their homes like piggy banks and use the equity for vacations or installing useless "theaters" or uber expensive kitchens, etc. Sorry, don't feel sorry for them. As for those that bought the house and the value dropped? You bought it, stay in it and continue paying. It's called real estate and it doesn't always go up in value.

  10. Who in God's name would buy a home in La Puente???? OMG! Gangs, crime, you name it! what a horrible place to live!!!

  11. RaptureMe says:

    It is such a bad idea to get a second mortgage as seen in this article.

  12. Credit scores are over rated. I stopped borrowing money, am in the process of paying off all debt and negotiating a short-sale on my house. Once I get everything else paid off, I will save a large down payment and my credit score will not prevent me from getting a mortgage.

  13. Public Citizen says:

    The thought just struck me that this is starting to look a lot like serfdom 2.0
    A quick history refresher: Serfdom was the feudal governmental system that legally tied people to a certain location by locking them into relationship with a certain plot of land. To be a regular person without being tied to the land made one, at best suspect, and at worst, ~an outlaw – literally – outside the law~.
    I have an uneasy suspicion that the only reason the Banksters – the modern equivalent of the Baronial Class – haven’t tried to push their legislative cats-paws in this direction, is because of the high percentage of people who don’t own real property or have the burden of a mortgage on their backs and the ease with which these non-property owners and freeholders may freely move about.

  14. Cliffystones says:

    Exactly my thoughts. The only place worse would be the "suburb" I grew up in, Maywood.

  15. In today's environment, foreclosures hit your credit rating for only a couple of years.

    It's no longer a death sentence, and may well be less hassle than driving yourself nuts trying to arrange a short sale.

    From a credit reporting standpoint, the latter is treated pretty much the same as a foreclosure.

  16. Michigan says:

    If people walk away, as some contend they should, who the heck do you think PAYS for that mortgage? The rest of us! No way – you bought it, you pay for it or sell it. Period.