• 14
  • November
    2010

Millions of homeowners in the U.S. are currently making payments on underwater mortgages. This means that homeowners owe more than the current value of their property. Many people in this situation who also lost a job or experienced another hardship have already had their home foreclosed upon. These other homeowners, however, are still employed and able to pay their mortgages, but the billions of dollars Americans are paying on the underwater mortgages instead of other kinds of consumer spending is creating a drag on the economy.

An article recently appearing in the Los Angeles Times takes an in-depth look at the complicated issue. According to the Times, more than 4 million borrowers, including 424,000 in Florida, are more than 50 percent underwater. These homeowners don't have many options in front of them, so they keep paying. Most can't refinance because they owe too much and they don't qualify for the Treasury Department's loan-modification program because they still have their jobs.

Many homeowners' only choices are to either keep making payments for more than their home is worth or to stop making payments in the hope that they will be able to renegotiate their interest rate and principal with lenders. If they stop paying there is the risk that they will default on their mortgages and banks will repossess their home, so most keep paying, but it is uncertain how long many will be able to.

Source:

Millions of homeowners keep paying on underwater mortgages (Los Angeles Times)