upside down mortgages

Help me understand why having an upside down mortgage is a huge problem.

1. OK, let's say you buy a house.
2. You live in the house for 5 years and your home value increases by 15%.
3. You have a fixed rate mortgage that you can afford and a good job.
4. You pay your mortgage every month.
5. Then, the economy tanks and a lot of people start defaulting on their mortgages.
6. You've still got your job and you've still got the same mortgage payment.
7. You continue paying your mortgage every month.
8. 9 months into an economic crisis, home values are way down.
9. Your home value has decreased by 25% (10% lower than when you bought it).
10. You still have your job.  Your mortgage payment hasn't changed.

You don't like your home value decreasing, but why can't you ride it out until your home value goes back up eventually?

Who are the people who can't ride it out?

Thank God that 92% of us are okay! Unfortunately, the 8% that aren't are going to drag the rest of us down.... There was a woman in Philly that inherited a house free and clear from her mom. She decided she needed a loan to fix up her house... She used the money to buy new furniture, car, and a vacation. Then she got a second mortgage and bought a big screen TV and some new clothes. Needless to say, the house is a dump, she can't afford the payments (gee--no job?! How did they give her a loan!) and she is going to lose her house!! Too many people want a free ride and live beyond their means. I am tired of paying their way! Grrrrrr.

Original Post by nomoreexcuses:

that makes sense...

• people who've lost their job
• people who've had their hours cut
• people who've taken a pay cut
• people who had adjustable rates and no wiggle room in their budget
• people who had balloon payments, which i don't care who you are, that is unwise anytime

Is this most of the people, do you think?

Just wanted to add one more. People going through a divorce.

A friend of mine is probably going to do a short sale of his house because neither he nor his ex can afford the mortgage alone.

I also read a newspaper article recently talking about divorced couples still living together because they can't sell their homes.

And that is how people get by.  They rent out rooms if they have them to spare, they continue business transactions as partners instead of spouses, or they choose to take the loss.  Why people are expecting to get something out of nothing I don't understand.  If someone on the street says hey, I have a $20 X that I'll sell you for $10 you start asking questions, so why not with real estate?

The real estate market gave all appearances of booming - and the average Joe (or Joanne) had always been taught that real estate is the 'best investment' one can make.

Couple that with the conventional wisdom that you have to own a house to be able to eventually retire one day, and the tremendous tax breaks for owners vs renters, and you have this culture of desperation when it comes to home ownership.

I think part of the problem is the assumption that if you don't own a home, you are somehow a failure, or at least a slacker.

we bought a home last year...one that we could afford.  Then my husband became unemployed...we could manage for a while ,but...

but since we didn't do an interest only...but a fixed rate and paid faithful until then, they have worked with us beyond what we would think they would...I think many are too afraid to talk to them...I know that our situation is a bit different since we didn't have that baloon payment issue, but they literally bent over backwards to help us.  and now that we are getting back on our feet, they are not rushing us to resume the higher payments...AND they count as "full" payments so we can refinance in about 10 months....

guess my advice is before you panic and just not pay...TALK TO THEM!

I did jump on the bandwagon and buy a new house when prices where high.  But I also sold my first home when prices are high.  I had about $170K in equity.  That's all gone but I can still make my mortgage payment and I would probably break even if I had to sell.  I love my home so even if I'm under I would still pay. 

Yet, I have a friend that bought at the same time and got 103% financed (she financed closing costs).   Her mortgages adjusted and now she can't afford it.  She tried refinancing but can't get anyone to refinance because she is so underwater.  She is going to walk away.  Ever since she decided, it seems like she is spending money like there is no tomorrow because she doesn't have to pay the mortgage.  It even looks like she will be able to be helped by the Obama plan. 

It bugs me that I put myself on a strict budget to make sure that I have enough savings, should I lose my job that I can still pay my mortgage, and she gets new shoes, new handbags, eats out, etc.  

As taxpayers, we are going to have to help out, but it still bugs me that I'm the little ant preparing for the storm, and the grasshoppers are just jumping all around.