The American Homeowners Sophie’s choice

It doesn’t get talked about much anymore but we are still in the middle of a housing crisis. Since Congress has decided to focus their laser like attention on jobs, jobs, jobs, which some how results in days of discussion about whether or not employers should be allowed to have some say in when women have children, it can be easy to forget. The truth is though we’re still stuck in an economy sucking housing crisis. Homeowners are stuck and while occasionally someone will mention foreclosure rates no one is addressing the real problem facing homeowners underwater mortgages. 

Earlier this week I receive a delightful call from Chase the bank I have my mortgage with. They wanted to inform me that interest rates are at an all-time low, and if I just refinanced I could save hundreds of dollars a month, if I qualified. Naturally a few extra hundred dollars would be great for me, the problem is I know far too much. I know, for example, that refinancing can cost a couple thousand dollars losing a lot of those “saving” in the short term. More importantly tough I know the value of my property has sunk more than 25% since I purchased the loan. What I don’t know is why Chase is calling me, if times were great in housing your bank would never call you to reduce your interest rate, a competing bank might but your bank would never do this because that is just money out of their pocket. Lest we forget though this not a great time in housing, so even though I know I don’t qualify because of the loss in value I let the man from Chase run some numbers. He said he’d get back to me in a day or two.
When he did finally call me back he let me know what I already knew. He said we could still try and get an appraisal and see what that turns up but it would be unlikely that it would help and I’d have to pay out of pocket a couple hundred dollars just to try. I thanked him and declined, but then I asked him the logical follow up question.

“So what should I do?”
“(Dead air) (dead air) well it’s hard for me to say what you should do.”
“but you see the problem here right?”
“Yes, you could wait for the value of your property to return.”
“Yes but that is a lot of value that I have to wait for.”
“You’re right, that is not going to return over night.”
“So really what should I do”
“You could try to cut your losses and sell…”
Millions of Americans are in the exact position I’m in. Last I checked the statistics are around 30% of homeowners are underwater. To be clear, being underwater on your mortgage is under all be the most bizarre circumstances completely out of the homeowners control. If suddenly your neighborhood becomes plagued by foreclosures your home value plummets. When this happens no fresh coat of paint or kitchen remodel is going to return the property to its sale value. 

All this is well known, but no one is talking about it. Pardon my imagery here, but there hasn’t been this much denial in the country since AIDS first started killing in huge numbers in the 80s. The bitter and ugly truth is most of the people with under water mortgages should simply stop paying. Depending on the state you live in, you could literally have years before you actually are forced to leave your home. In that time if you take the money you would be spending on paying your mortgage and instead saved it you might even be able to afford the down payment on a foreclosed property. The problem is, and the reason why no one is suggesting this in the public square, is if everyone did this the banks would collapse, and the economy would once again come to a grinding halt. So instead, everyone just ignores the fact that millions of Americans are essentially personally bailing out the banks who just last week proved again why they should not be trusted, Jamie Dimon I’m talking to you.
So what choice is left for the homeowner, if they stay in their property they are potentially wasting hundreds of thousands of dollars in interest charges. If they try to get out, by either short sale or foreclosure they destroy their credit which can affect everything from renting a car to getting their next job. The fact that we aren’t talking about this is the real tragedy.

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