The couple bought the home for $415,000 and later took out a $65,000 second mortgage. Today, Maria and Jose owe $245,000 more than their home is worth (which is $235,000) and have a loan to value ratio of 204%.
Selling the home without harsh negative consequences seems impossible without government assistance, a prospect that is unlikely at best.
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.
The amount of equity in the house is inconsequential. When Maria and Jose bought the house for $415,000 they knew that it would take 30 years to pay it back, and that their payment would be about $2,600 a month. Nothing has changed! They made a commitment to pay the mortgage for 30 years, but now they’re having second thoughts because they see the property has gone down in value. In the insurance business we call that a “bad investment”. I am very much against government action to compensate people for bad investments.
John Shore, age 62, says he can’t retire and move because he’s locked into mortgage payments on his severely ‘underwater’ home outside of Fresno, Calif.
This is just silly. Mr. Shore was going to have a mortgage payment whether the house was “underwater” or not. If he can’t retire because of the mortgage he obviously knew that would be the case when he took out the mortgage (which, at a typical span of 15 or 30 years, is about the most predictable bill any of us ever encounters). I suspect what Mr. Shore meant to say was “I bought this house as a speculative investment hoping to ‘flip’ it and it didn’t work out as I had hoped. Now I want the government to cover my gambling losses so I can retire.”
What ever happened to personal accountability?