The new catch phrase for this tanked economy is ” underwater”. By the definition given by the housing market, a homeowner is “underwater” if they owe more money than the house is worth. I can see that..and it sucks. Maybe I am confused. Maybe I am ignorant. So I am asking for a reader education. I’ll speak my peace and you answer me if I am right, wrong, misinformed, or right on the button.
When I was a kid, the best lesson my parents ever gave me was money managment 101: live on less than you make and borrow only what you can pay back. Its a pretty simple concept and one that I have based my life on. I have ONE and ONLY ONE loan right now: my home. I bought my home 15 years ago. I have seen its value go UP, go DOWN, stay stagnant. I put 20% down, and faithfully make my payments ( and then some) each and every month. If all goes to plan, I own my home in about 4 more years. I have no intention of ever buying another primary residence again.
In my home state, 1 in 4 owners are ” underwater” : they owe more than the home is worth. OK that sucks. So why are they being foreclosed? BECAUSE THEY AREN’T PAYING THEIR LOAN, THATS WHY. You can owe more than the home is worth simply by taking out loans against your home( and its value tanks), but if you pay back your loan, you can stay in your house. Put simply, if you buy a house for $300k and you have a $2000 monthly house payment…and you keep making your housepayment, it doesn’t really matter if your house is only worth $100k..you can stay in the house. If you quit paying your mortgage, the bank wants their house back..and frankly, that is fair. After all, when you signed that 4 inch stack of papers buying that house, you agreed to such. I am quite sure somewhere in there is the phrase ” I agree to pay…..”
The term “underwater” confuses me a bit. With the exception of HOUSES..nearly everything we buy goes “underwater” as soon as we take possession of it…think about it. You go to the car lot and buy a brand new car for $40k…you agree to pay $40k for the car and you sign the paperwork and leave the lot. Nearly IMMEDIATELY it becomes a “used” car and its value depreciates. You are technically “underwater”, but you still have to pay $40k (plus interest) on the car.
So why is this such a travesty in the housing industry? Is it because we liken our houses to mini-banks? Hey martha, I wanna new boat, lets get a line of credit on our house!. I have an equity line of credit on my house, that I used when we did a kitchen remodel and roof job. I used it to improve the structure, not to buy a vacation, boat, or pay bills….( which in my opinion is robbing peter to pay paul)
Or do we blame the banks, who sold a lot of people a real bill of goods? ok, so you two are a pre-school teacher and a waiter…hmmm Yes of course you can afford a 675,ooo house….let me draw up the papers now to pre approve you. I remember when Mr Chick and I were house hunting..we were preapproved for a phenomenally large amount of money. NO friggin way was I going to buy a house that would make our payments 40% of our take home pay. ….for 30 years. If we lost one of our jobs, we would be tight, but we could stay in the house…because we bought under our budget.
Or do we blame people who bought houses they probably knew they couldn’t afford? Lets take this 0 down plan, and refinance when the balloon payment is due and our equity is up….(fast forward 4 years) uh oh, house has no equity earned! what do we do??
I have no idea if they still offer these things but for a while people were jumping on ” interest only” loans for a while. Gadzooks! you never actually pay off any debt? What is the advantage of that?
I just don’t know what to think. This isn’t about life circumstances that are being thrown a curve ball- when you lose your job, everything goes down hill, including your ability to pay for stuff.
What is your take on this matter–where-ever you are in the country/world? Who is responsible? IS there shared blame? Whats next?