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Underwater Mortgages


Underwater Mortgages

Underwater Mortgages – What Do Homeowners Face in 2013? - Even though home prices are slowly starting to tick back up in many parts of the country, millions of America’s homeowners are still “underwater” – meaning that they owe more on their mortgages than the properties are actually worth. And even though economists declared the recession to be officially “over” years ago, underwater mortgages are still a big problem in 2013. In fact, real estate experts say one out of every five mortgages is underwater today!

So, what is it like to be an underwater homeowner these days?
When you go beyond the statistics, you discover a tale of stress and emotional strain. Imagine the pressure of having a home that has become a financial burden. Not only do you have a mortgage that’s worth hundreds of thousands of dollars (and the corresponding payments every month), but you know that your home isn’t worth what you’re paying for it! So, you know you can’t put it up for sale anytime soon, because you’d wind up owing more money to the bank than you would ever get for it from a buyer.

As a result, you can’t move to a new city for a better job – or, ANY job if you’re unemployed. You’re literally stuck where you are, forced to choose between opportunities and the financial burden that you call “home”.
In fact, it’s that lack of opportunity that can create a dangerous cycle, according to a paper written on the effects of underwater mortgages. The data for the paper was collected over a span of two decades, but it’s still very relevant in 2013. It says that underwater homeowners are willing to work for lower wages, simply so that they don’t have default on their mortgages. Specifically, according to the paper, for every $10,000 a homeowner is underwater, he is willing to accept 0.7% less pay.

So, what can you do if you’re one of the millions of homeowners who is underwater?
One option you have is to take advantage of HARP – or the Home Affordable Refinance Program. That’s the government stimulus program that was created back in 2009 in an effort to make mortgages more affordable for underwater homeowners. Under the program, you have a chance to refinance your existing mortgage and take advantage of today’s incredibly low mortgage rates. And, luckily, you’ll have your choice of lenders, so you can take full advantage of all the competition. HARP loans aren’t guaranteed, though. In order to qualify for one, you need to have a history of paying your mortgage payments on time. So, if you’re thinking of applying, you need to do so before you start missing payments. The more you miss, the higher your chances of getting denied. So far, about one million homeowners have taken advantage of the program. The largest chunk of HARP requests (18.5%) have come from California. Florida is next on the list, with 14.8% of HARP requests coming from the Sunshine State. Neither of those should come as a surprise, though, since both states saw skyrocketing prices during the housing boom – then saw prices come crashing down after the housing bubble burst.

Is there any end in sight to all of these underwater mortgages?
According to economic experts at JPMorgan, America’s housing market lost a whopping four million underwater mortgages in 2012. They say if the U.S. economy can keep up its current growth pace, the total number of underwater mortgages should drop to a total of four million by 2015.

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