underwater mortgage (thing)

I’m gonna try and leave out the specifics on what led to the mortgage crisis for a couple of reasons. First of all I’m not an expert on the topic and there’s probably enough blame to go around on both sides of the political spectrum to last a lifetime. Second, I’d rather just define the terms of what an “underwater mortgage” is rather than trying to place them blame on anybody specific.

With that out the way, an underwater mortgage situation occurs when the house you had planned to own in fifteen/twenty/thirty years is now worth less money than what you currently owe on it. Recent estimates show that about twenty five percent of all mortgages in the United States are currently underwater. In Nevada, that figure is a staggering sixty five percent.

What should one do if they happen to find themselves in this unenviable position?

Well, first of all if you’re up to date on your payments you might want to consider just riding the storm out. This strategy is predicated on a few conditions though. First of all, for obvious reasons, you shouldn’t currently be behind in your payments or be in foreclosure proceedings. Second, do you still anticipate earning enough income over the coming years to keep up with your payments and lastly, do you really want to stay in this place that you currently call home?

There’s a couple of risks associated with this strategy. After all, without being able to gaze into a crystal ball and predict the future, property values might still be a crapshoot for years to come and there’s no predicting when your little slice of land is going to increase in value.

If you’re brave enough to try and refinance the home then good luck to you. It probably ain’t gonna happen. If you don’t have enough built up equity in your humble little abode there’s probably not a lender around who will be willing to touch you.

One other option is try to rent the place out for a while to generate some more income in order meet the payments. This is probably a double edged sword because there’s a couple of things you really need to consider before going into the landlord business

First and foremost, find out the current rent other places are charging for similar properties in your neighborhood. This should give you a good baseline to work with and you can adjust you numbers accordingly to try and make ends meet.

Maybe more importantly though, are you cut out to be a landlord in the first place? After all, you’ll probably be interviewing a shitload of people who might seem like the nicest people in the world but then turn out to be the living embodiment of the cast of Animal House. Okay, that scenario might be a little extreme but one never knows. The more mundane things such as clogged toilets and drains and day to day wear and tear will probably take more out of you since you’re pretty much expected to be on call 24 x 7.

If you don’t have an attorney yourself, it might be a good idea to brush up on some landlord tenant law in your neighborhood. This is to protect both you and your tenant when disagreements over the terms of the lease might arise.

And finally, there’s the nuclear option. You can just “walk away” and get foreclosed upon. Just remember, should you make this decision it’ll stay on your credit record for upwards of seven years. Wanna new credit card? Be prepared to pay higher rates. How about that brand new car you’ve been looking at since you’re clunker is on its last legs? Prepare to have somebody co-sign with you. Looking for a new job? Uhm, sorry to inform you, most employers these days will run a credit check on you before they make a hiring decision.

That’s about all I can think of when it comes to underwater mortgages. Of course the best advice is to never buy what you can’t afford but I really don’t think too many people saw the housing bubble looming on the horizon and the chilling effects it has had here in the States on both the economy as a whole and as an individual home owner.