Underwater mortgages: why do they result in foreclosure?
I read an article on Yahoo! today about underwater mortgages — the situation you’re in when you owe more on your house than it’s worth. I don’t get why this leads to foreclosure. If you can afford to keep on paying your note every month, what difference does it make how much your home is actually worth? Isn’t this the exact situation that everyone with a car loan is in? Your car is a depreciating asset — but nobody “calls in” your car loan just because it’s worth less than the day you bought it.
Tags: Foreclosure, Mortgages, result, They, underwater
You understand this correctly–if the homeowner keeps paying on time and the full amount of the payment, no problem.
Many homeowners seem to think their mortgage and their house are the same thing. They bought a house and RENTED money. Even if the house goes down in value, they still owe the money. Unfortunately many people seem to think that if the value of the house goes down, the bank deserves to take a loss too…so they intentionally stop paying and take a hike. Some even go out and use the last of their good credit and buy another house (at disclosure prices) before shirking their obligations.
It also depends on how much deprecation takes place. In some states house values have dropped hundreds of thousands of dollars. The values were inflated way more than they should have been. It was like musical chairs and some of the flippers got caught holding the loans. Then you add to that the trouble in the sub-prime group who were hoping that adjustable rates wouldn’t go up until their income increased over time. Then they could at least afford their costly homes. It didn’t happen. I can see why they walked away. Think about it. How do you sell the house at current market value? Also, if you continue to make payments your amortization is based on an inflated value. Stupid loaners in that case.