Upside down on House

My brother (CA mountains), sister (Northern San Diego suburbs), and I (Upstate NY) all were upside down on our mortgages last year. We all went through short sales. Somehow we (you, me, my siblings, etc.) were convinced that we could afford our houses. Whether it's about home value, your mortgage, job/family situation, city flux, or the whole "blame the industry" thing - it doesn't matter HOW you got there. It's scary as heck. And you're asking a great question.

Do you need your credit rating? What for? What does your future look like, in your heads? (the future you and your husband have together) Think about these questions and ask yourself where you'll go, what you can realistically afford (because it won't be a purchase unless someone co-signs, if you foreclose or do a short sale). Do you mind renting? Do you mind moving?

I have never felt so free as I do now. Money is SUPER tight. We have no credit cards. We have 1 job, 4 people. (2 of them are toddlers). We moved to be closer to my mom. And you know what? We followed a trail we thought would lead to well-being and happiness. And it did! I don't even care that we have no credit, no credit cards, no savings, no house, 1 car instead of 2, and can't EVER order pizza. We are having the time of our lives! We have found "the small stuff" in life and it's fantastic. It was worth every mistake, every penny, every tear, every tongue lashing. It really was.

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Just my opinion.. not trying to offend or anything... but... do you still like the house? You must've liked it at least $250k worth when you bought it.... unless something is wrong with the house now... then I don't see why you can't just suck it up and pay for it. Sounds a little like your husband was willing to gamble (took out interest only loan, assuming that the prices would continue to rise and you wouldn't have to actually pay anything towards the house, but sell it later for appreciation gains) and you guys crapped out, pardon the reference.

The honorable thing to do is pay what you owe. What are you going to do for living arrangements if you walk away? No one is going to lend to you to buy another home. Your credit is going to be completely wrecked. The long term problem isn't that your loan will adjust, it's that you aren't paying on the principal balance... the balance you owe is probably going up, if I guess correctly. Without knowing the details of your mortgage contract, it's hard to say exactly what your options are. Have you talked directly to the mortgage company?

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This sounds familiar - we are in the same situation and considering our options. So we have done a little research on this... We are still not sure what we want to do because we have a family. The problem is that we are in a townhouse (so it is less likely to appreciate beyond what we paid for it) It is worth 1/2 of what we owe. But we really would like a house with a yard and a bigger living space for our family.

You can have a lawyer call the mortgage company and basically tell them that you want your balance lowered or your interest rate lowered (as low as 1%) or you will walk away. It is really expensive to foreclose and sell a house, so they don't want you to do that.

If you decide to foreclose, you can stop making payments and live in the house rent free until the house sells (min. 4 months to foreclose). This can buy you time and you can buy a new home after 1 year if your credit is good. Both a short sale and foreclosure will hit your credit.

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Is there a reason you need to sell ? You still have 1 1/2 yrs before your loan will adjust so why would your husband want to walk away now? Just because you walk away doesn't mean you cut your losses, you can still be sued by the mortgage company. People should not have the option to just walk away if there is not a very good reason because that's going to make this crisis even worse for even longer. The government treated it as a right to own a home instead of a privilege. The mortgage companies were told by the government to lower the standards so more people could qualify for homes. I was a mortgage broker for 16 years & in 1999 the guidelines were basically out the window & just about everyone could qualify for a home & here we are. My SIL works at a major mortgage co & she underwrites in the loss mitigation dept & her advice is to keep on your mortgage company to modify. Every time you are turned down, reapply. Also a little tip, don't over stretch your outgoing expenses on the modification papers. You don't want to look like you have a negative outflow. You dont want to look like you cant afford your home so be realistic. She said a lot of people think they need to look like they don't have any money at the end of the month & they cannot afford their home so they are turned down because the mortgage co thinks the people cant afford the home anyway. Also talk to whoever you are assigned to & ask lots of questions. I don't recommend paying a lawyer they wont be able to do any better than what you can do yourself & they charge hefty fees with no guarantees. Good luck

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Like many Americans, you guys are left holding the bag and sweating the details while bankers in this country continue to make out like bandits. It is absolutely criminal what was allowed to happen.

IMHO many average Americans were COERCED into over-paying for properties because the banks and the govt artifically raised the demand for homes. I have seen this go on in Florida for almost a decade now.

If there is any way you can get out of this situation without severely damaging yourselves - more power to you. Keep searching for viable solutions. I'm not saying you shouldn't pay your loan - I just don't think average Americans should bear all the burden.

Good luck and God bless you.

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J.,

I just wanted to add a few things to look into. What is your mortgage rate based on? Mine was based on the 12-month LIBOR plus a 2.25% margin. I was scared that it would go up last year, when it actually adjusted down 2% because rates were so low. With any luck, rates could stay low so maybe yours would adjust down or even stay the same. (Mine, too, I hope.)

Also, the housing market in the valley is starting to show signs of stabilizing. My home in Gilbert hasn't dropped any value for 6 months, and they say it is showing a slight appreciation again. Although I'm sure things won't go crazy like they did, a little is better than none, right? The longer you can hold on to this home, the better off you'll be if/when you must go. If inflation creeps in to make rates go up, then the value of your home will rise as well.

One last bit of food for thought...is all of your mortgage from purchase money, or did you refinance and take some cash out to pay off other debt? If they foreclose, the mortgage company can't come after you for the purchase money, but they can sue you for any money you owe that was not used to purchase the home. Good luck.

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I do agree with Dawn and Sheila. The mortgage companies were greedy to let people get into houses without showing they could actually afford it. But, on the other hand, the homeowners have to know what they can afford and know what the consequences are of getting an ARM, etc. When we mortgaged our home, we made sure it was fixed because we didn't want the risk. If you like your home, which I assume you do, since you are living in it, then why would you walk away from your obligation and trash your credit? Home prices will eventually go up. The market is cylical. Your house is still worth more than you owe. It doesn't matter how much the house is worth unless you plan on selling, because if you wait it out, the price will will eventually come back up. Right now you have a roof over your head. All these people walking away make the market worse, and they are the first to complain that the market is bad. If you walk away, it kills your credit and good luck trying to get a job if one of you were to lose yours. Employers do credit checks. Where else would you live? Apartments do credit checks too as well as car dealerships... Keep working with banks, mortgage companies, etc. to try to get a fixed mortgage. Hang in there!

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I suggest reading a Dave Ramsay book on handling finances.
The premise is to live on less than you make. He NEVER would endorse and interest only mortgage.
Look into this topic on his website--he gives solid financial tips and advice. Find his show on a local radio show.
Good luck.

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We are in the same position. After talking with a attorney - I found my only option is to default for 2 months. So we are going to default. I also was told that if you are only defaulting on your mortgage - not anything else - the hit isn't that hard to your credit score. If you are able to refi - or get your loan modified - they take the default off your credit. We are going to default and in 2 months see if the banks will work with us. If not - then I will give them a deed in lieu. Which also looks better then a foreclosure on your credit. I have multiple friends that have foreclosed in the last few years - many of them have already bought houses again.

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All I know is that home prices will not be coming back For a LONG long time.
The jobs loss is horrendous, and without jobs, there is NO RECOVERY.
The media lies when they say there is a recovery. What there is , is inflation.
That is their idea of recovery. You can track inflation by tracking rising gold prices. And gold indeed, is rising steadily. Inflation is here and getting ready to take off.
If you can't get into a fixed rate soon, and can't afford the mortgage, DON'T LEAVE YOUR HOUSE. Just STOP PAYING THE MORTGAGE. It will take about a year before they can forclose on you and kick you out. In the meanwhile, Squat in the home and save your money for a future place. Or move out and find a relative who can house you for free while you save some cash. you are going to need it.
The economy is going to get worse, more people will lose jobs, and the interest rate is going to skyrocket as inflation creeps in because of all the money printing: AKA monetary easing. AN ARM mortgage is not the place you want to be. If you can't pay it now, likely you wont be able to pay it then. Rents will increase also.

Read this book " Aftershock; protect yourself and profit in the next global financial meltdown" - you can get it on Amazon.com. Get yourself prepared for what is coming.
Since home prices will keep dropping, there will be areas in the country where some homes will be relatively cheap. In a couple of years you may be able to save up enough to put a good chunk towards one.

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I have read that one out of five mortgages are upside down, J.. It is criminal what the mortgage lenders allowed - interest only loans included, but also terrible that homeowners chose this kind of easy financing to get into more of a home than they could afford. I assume your husband or maybe both of you still have a job, so you can still pay the mortgage. If you expect to stay in this house without relocating for his job, at some point perhaps the real estate market will start to firm up and eventually your home worth will rebound enough for you to be able to refinance. Keep watching what the government is trying to do to help homeowners with it - and keep pushing your mortgage people if you find something that's out there. There are programs the government is trying to implement, but so many of the mortgage companies are dragging their feet doing it.

If you do walk away from the house, you'll have at least 7 years of not owning a home, possibly 10. Figure out how much money you will pay in taxes from losing your interest deduction, and ask a tax accountant if you will have to pay some sort of tax penalty for walking away from your loan. I know that credit card companies tell the IRS when someone defaults, and it can be counted as income because of not paying the debt.

According to what kind of business you or your husband work in, you could lose your job or lose the ability to be promoted if your credit is shot. Also, your car insurance can go skyhigh with bad credit. All this needs to be factored into your decision as well.

It's terrible when one loses one's job and can't pay the bills. But people who walk away from obligations when they knew what they were getting into is one reason why the mortgage market has blown up all over the US. It's hard living with a bad decision, but before walking away, find out exactly what will happen if you do.

Good luck,
D.

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If you do decide to walk away, look at doing it with a bankruptcy. It may give you the chance to get out of the credit card debt that you racked up trying to live with such a high mortgage, too. It will also keep you from owing taxes on the foreclosed home and credit card debt. Just something to consider.

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So many opinions....I hope you are able to find something to help you. I read your post and immediately thought, "Wow, did I write this?" Until I went to have my taxes done last month, I was just like you- wanting to hang in there, etc. We also have an ARM that is going to adjust and a house that loses value every day. Unfortunately, though we've been proactive for nearly a year to get our mortgage company (a servicer, we learned, NOT a bank) to assist us, we've been told a myriad of unbelievable things, ranging from, "...we can't help you until you've actually defaulted," to "...have you considered eating less to spend less on food each month?" When our accountant told us that in our position, with no tax liability, she would walk away from the house, my mind was changed. The truth is, the mortgage situation is beyond ethics and morality. Banks, businesses, and whoever else is involved in the creation of this economic mess aren't bothered by their questionable ethics or morals. They're getting money from the government for foreclosures and/or short sales! Just today, my husband, in frustration, told the mortgage company of his intent to stop paying the mortgage and to vacate our house. The person on the line said to call back when we have a more significant income loss- we've already lost quite a bit! In the end you must do whatever you can live with that also happens to be best for your family- just be sure to do your homework first!

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talk to another motgage company and see if they can help you. if you really need to move you can always do a short sale. the gov allows you a one time ooops i messed up. so the differance you would owe to what you sell may be waived. theshoet sale stay on your credit report for up to two years and can hit for up to 150 points. a forclouser is up to 10 years with 300+ points. and you can not purchase a home for that time also. we are currently doing a short sale for our home we had to move out of state for hubby's job.good luck

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Have you looked into Dave Ramsey's Money Makeover?
We attended the Financial Peace University (FPU).
It has provided a lot of financial education for us.

If interested, here is his link:
http://www.daveramsey.com/

The best to you,
~D. G.

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Houses seem to be dropping all over but that doesn't mean they won't go back up, so if you can hang in there. Other poster was right, where will you live? I am assuming this means letting them foreclose. So what if the house goes up in two years? Keep trying on the fixed loan, you just never know.

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Have you thought about renting your current home out and moving to a smaller place (rent as well)? You could possibly sell or move back in when things get better.

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