Where is my Ocean View?

Repost: Help, I Need $153,000!

2009-01-08T12:53:00.000-08:00

This is a repost from my main blog M is for Money, where I deal with finance in general not just the perils of being underwater. This is related to my earlier post, Called My Lender.

How do you come up with $153,000 in a hurry? Really I have no idea, but that is the amount I would need to refinance my mortgage. I bought a small starter home in 2005, we planned to move up after ~5 years. I took out an adjustable rate loan, which now seems like a ticking time bomb in my lap. Mortgage rates have never been better but like all the other underwater homeowners, I can’t take advantage of them. I tried calling my lender to see what they could do. The news wasn’t good.

They are holding my mortgage, it was not sold off to investors. But any modification or refinance would have to conform to traditional standards and the loan could not exceed 80% of the appraised value. The not so helpful loan officer asked how much I was upside down - I told him I didn’t know but it was significant. Afterwards, I used their online home valuation estimator. Based on my current loan balance, their value estimation and the 80% limit, the difference was $153,000. Yeah, I’ll just write you a check.

Their valuation model had some quirks, my home value was placed 50% below the comps! Only 1 of the 8 was actually in my neighborhood. None of the comps have a view like I do, most are in poor condition and all have smaller lots. Still, even an optimistic appraisal would leave me owing a hundred thousand to refinance. Money I don’t have.

The call left me rattled. I had held on to the hope that my lender, a credit union, would be more flexible. The money has already been loaned out, why not reduce the risk of default. It’s extremely painful knowing I could pay half as much for the same house. I’ve made a lot of financial mistakes in my day, but I’ve been able to recover. I don’t know what to do this time. It will take me 10 years to save up that much. If the rate adjusts to the maximum, my payments would increase by 60%. The $3500 monthly house payment would eat up most of my salary, say goodbye to saving. I feel helpless.

Called my Lender

2009-01-02T10:15:00.000-08:00

I called my lender today to see what options I have. Unfortunately, not many. They are holding my loan as I guessed, but any modification or refinance has to conform to an 80% Loan to Value limit. As you know, I owe way more than the current value. I tried explaining to the gentleman that it was in their interest to offer me better terms, I'm not sure he understood why! Unfortunately he was a lowly peon and I'll have to go higher to get any real help. I have the name and number of his manager, who was away at the time. My best hope is that Fannie and Freddie start allowing no-appraisal refinances. A precedent like that may convince my lender that these are extraordinary times and conventional practices need to be re-evaluated.

What Happened to the Neighbors?

2008-12-24T12:44:00.001-08:00

I haven't had a chance to read the full article but it looks like a good read. Courtesy of GQ magazine What Happened to the Neighbors sends writer Charles Bowden to live in foreclosure hotspot Lake Elsinore.

I hope everyone has a happy holidays, in spite of the economy and our housing woes.

Can you Afford it Now?

2008-12-22T14:22:00.000-08:00

This story from the LA Times caught my attention: Can you afford it now? The article looks at several price points in the Los Angeles housing market and what you can find for sale in that range. You can tell we're in completely different territory than a year or two ago, the prices start at under $100k! The thought that you can buy something in the greater LA area for under that is rather shocking, the median price of a home last year was close to $500k. But my dreams of affording a nice neighborhood still seem just that, dreams. The offerings for the $500,000 to $1 million range are not very impressive, regular houses in regular towns.

Short Sales

2008-12-16T20:53:00.000-08:00

The LA Times has advice for underwater homeowners trying to engineer a short sale – How to unload your home through a short sale. Short sales seem more myth than reality, most stories involve their failure. Usually the bank is slow to respond and eventually the buyers walk away from the deal. If you’re a desperate short seller, the unwelcome news is that most end up in foreclosure. This article has a few tips to help you succeed. Here are a few of their main points:

Look for an agent with experience in short sales, it’s helpful to find an agent with contacts at the loss mitigation departments of major lenders.
Make sure you qualify – you must be behind in your payments and have little to no equity. Generally you must show a form of hardship – job loss, divorce, rising payments etc.
Offer the right price – lenders have a bottom line number they’ll accept, it’s pointless to submit offers for less. Generally lenders won’t accept less than 80% - 90% of current market value.

A short sale is preferable to a foreclosure. The damage to your credit is not as severe - the short sale is recorded as settled for less than full amount. In a few years you can own a home again, hence their popularity.

I know there are several houses in my neighborhood currently listed as short sales. Most were purchased around the same time we moved in, so they are similarly underwater. I haven’t noticed any movement on those homes, though a foreclosure was sold recently. If you are trying for a short sale, I wish you luck.

Should Cities Buy Foreclosed Homes?

2008-12-14T18:41:00.000-08:00

This poll at the OC Register caught my attention: Should Surf City Buy and Sell Foreclosed Homes? Surf City is Huntington Beach, CA and apparently the city council votes tomorrow on a program to buy foreclosed homes and then sell them as affordable housing to residents. You can stop on by and register your opinion on their poll. Personally this will have little impact on the overall housing crisis, cities do not have deep enough coffers to buy up all the distressed housing. But affordable housing is an ongoing problem in Los Angeles, so this could benefit individuals and families who have been priced out of ownership. The city's main concern is removing the blight of abandoned homes and the associated cost to the city. What do you think, good idea or not?

Decades to Recover

2008-12-13T16:42:00.000-08:00

From USA Today, Why home values may take decades to recover. Their analysis looks at historical home price trends compared to the bubble years. If you adjust prices back down to historical norms and then apply the normal rate of appreciation, it will take years to reach previous highs. Even after we re-attain those price highs, value will still have been lost to inflation.

The article starts with an extreme example of how far prices have fallen. Mr. Wallick of Oregon bought a brand new house in Arizona for $200,000 in 2005. He put $70,000 and took out a 15 year fixed rate loan. The house is now only worth $80,000 and he is walking away.

There are some ominous predictions for those of us hoping to ride out the storm. This quote in particular was distressing:

"We will never see these prices again in our lifetime, when you adjust for inflation," says Peter Schiff, president of investment firm Euro Pacific Capital of Darien, Conn. "These were lifetime peaks."

In previous bubbles the recovery took a long time, but it did eventually arrive. This implies that we may be waiting in vain. Unfortunately predictions like this tend to be self-fulfilling. Hearing this news more people could decide to walk away from their homes, accelerating and deepening the collapse. It certainly does not cheer my heart.

Fannie and Freddie Might Waive Appraisals for Refi's

2008-12-10T20:03:00.000-08:00

From Calculated Risk: Report GSEs may waive appraisals for refis. This would primarily benefit underwater homeowners who have some form of an adjustable loan. As it stands these homeowners can't refinance into a fixed rate loan because of the appraisal. Since mortgage rates are currently low, a refi could help some underwater homeowners make it through the downturn.

There would probably be some restrictions and it would be limited to loans that Fannie Mae and Freddie Mac already hold on their books. No cash out refinances, only a new rate and term. I'm not sure what the income documentation requirements would be. Also, in a lot of high priced areas the loans were "nonconforming", more expensive than the GSEs could purchase.

There are some interesting comments to the CR post. Apparently FHA has a similar program already called a "streamline" refinance. If you are in this position, underwater and facing a rate reset, it is worth calling your lender. Mention these programs and ask if they can offer anything similar. They may not be able to, depending on who the loan was sold to. But it never hurts to ask.

Foreclosure Vandalism

2008-12-09T19:16:00.000-08:00

This post at the Carnival of Personal Finance caught my eye: Foreclosure Vandalism by Save and Conquer. I've heard of the phenomenon before, angry homeowners trashing the house before leaving. I've seen photos of houses stripped bare, entire kitchens missing. In acts of vandalism no one profits and unaware homebuyers may get caught holding the bag. The author's in-laws are looking to buy a new house, a foreclosure house. Their inspector discovered the copper pipes had been removed! One more reason you should always hire an inspector when before closing on a house.

Ventura CA - Upside Down Housing Market

2008-12-07T15:51:00.000-08:00

This article from the Ventura County Star caught my eye - An estimated 40% of local homes bought in the past five years are worth less than purchase prices. One of the upside down homeowners featured in the article tries to have a sense of humor about his predicatment.

"Brian Hill jokes about his uncanny timing.

He finely calibrated the moment in the spring of 2006 at which he bought his $630,000 home on Thames River Drive at RiverPark in Oxnard.

'I think the value started dropping right after we put in the down payment,' Hill said. 'Right when I signed. Probably right when I removed the pen from the paper it started to tank.'

The Ventura County housing market peaked in December 2005, when the median sales price for new and existing homes and condominiums topped out at $630,000. Since then, prices have plummeted a dizzying 40 percent to $375,000 in October, according to DataQuick Information Systems."

I've tried to make a joke out of my situation too, you have to laugh to keep your sanity. Ventura county has been hard hit in the current crisis, former farmland was converted to housing at breakneck speed. A lot of housing was created during the boom along the edges of Los Angeles. These are the areas now suffering, their very youth their downfall. The article has some interesting comments at the end, including several from people caught in the last big California real estate crash.

10% of US Mortgages Late or in Foreclosure

2008-12-06T15:25:00.001-08:00

I promise I don't specifically seek out bad news, but lately all housing news is bad. Here is the latest from the LA Times - Record 10% of U.S. homeowners in arrears or foreclosure.

"In Florida, 7.3% of home loans were in foreclosure at the end of September. The figure was 3.9% in California and just under 3% for the nation."

The other piece of grim news is the number or percentage of houses in default that end up in foreclosure. Typically, most homes that receive a notice of default don't actually end up in foreclosure. That statistic is changing.

"At first glance, California's troubles seem little different from those anywhere else, because just under 7% of borrowers in both California and the nation are behind on payments. But Brinkmann said a clearer picture emerges when you compare the number of newly delinquent loans in one quarter with the number of loans entering the foreclosure process the following quarter.

That foreclosure 'roll rate' was about 10% to 12% nationally in the 1990s and ran from 12% to 15% for most of this decade, Brinkmann said. The percentage is now 30% nationally but has reached 79% in California and 65% in Florida, he said."

Option 2 – Jingle Mail

2008-12-04T16:08:00.000-08:00

A few weeks ago I covered Option 1 for underwater homeowners, ride it out. This week it’s Option 2, the infamous jingle mail. The term comes from the jingling sounds your keys make as you mail them back to the bank. In this case, you don’t wait for foreclosure or try to ride it out. You simply walk away from the house, giving it back to the bank. According to our poll, there are homeowners who visited this site considering jingle mail. But, some sources say it is more urban myth than reality – Mortgage holders find it hard to walk away from their homes.

Walking Away

Don’t think you can simply walk away without consequences. Another term for jingle mail is voluntary foreclosure, you will have a foreclosure on your credit report. Your credit score will drop and it will be difficult to impossible to get a loan in the following years. The blemish should disappear from your credit record in 7 years, though some lenders may take a gamble on you before then.

Your credit score affects you in a myriad of ways – landlords will check it when you rent an apartment, a potential employer may look at it when evaluating whether to hire you, even your auto insurance rates can be affected by your credit score. If you always had good credit, you’ll find a foreign landscape after walking away.

Recourse

Depending on the laws where you live, your lender can pursue you for their loss. Let’s say the bank sells your home for $50,000 less than what you owe - in some states the lender can sue you in civil court for that amount. This is called recourse. Other states are non-recourse states, lenders cannot come after you for the difference. Once they take the house, that’s it. California is non-recourse for purchase money loans, but refinance loans are recourse.

It’s important to know your local laws before walking away, there is a handy guide in this post from Girls Just Wanna Have Funds. If you have decided that walking away is your best option, please consult with a lawyer first. There may be other options or complications you haven’t considered.

Tax Implications

The IRS normally taxes any debt forgiven as regular income. Let's say your lender didn't pursue you for that $50,000 loss they incurred, the IRS could treat that $50k as income to you. You would then owe taxes on that amount. But, as this housing crisis mounted President Bush issued rules to suspend the practice for housing loans. It's unclear to me whether this only applies to purchase loans or if refinance loans are also eligible. This tax law provision expires at the end of 2009.

Ethics

I’m not here to say that walking away is right or wrong. I do not know anyone else’s complete financial story. I have also had the pleasure of being judged by others who don’t bother to read the story in front of them. But, the idea of jingle mail elicits strong feelings in many people. See this post about the ethics of walking away. Anyone contemplating jingle mail should expect some criticism.

Anecdote

At my aunt’s house this weekend she told us the story of a family friend. He bought a new house in New Mexico before walking away from his home in California. I have heard of this strategy before, buy a new, cheaper house while your credit is still good. So anyone out there who has walked away from a house? Care to share your story?

California Takes 1st, 2nd and 3rd!

2008-12-02T21:06:00.000-08:00

Too bad it's a prize you don't want to win. California took the first three spots on a list of areas with the steepest price declines. Courtesy of the LA Land blog, Biggest Dips in California. Here are your grand prize winners:

Oakland-Fremont-Hayward (CA): - 29.07%
Riverside-San Bernardino-Ontario (CA): -28.56%
Los Angeles-Long Beach-Glendale (CA): -28.46%

Not much difference between 1st and 3rd, all of the numbers are painful! The remainder of the list includes the San Diego area, three metropolises in Florida along with Phoenix, AZ and Las Vegas, NV.

Is 'Intentional Foreclosure' Ethical

2008-12-01T16:35:00.000-08:00

A reader's question to Bankrate.com - Is 'Intentional Foreclosure' Ethical? The author of this question is underwater to the tune of $120k and wants to use his $80k cash to buy a new home before walking away from the first. This is a variation on jingle mail, where you mail back the keys to the bank. Interestingly, the expert never answers the question of whether this is ethical. Instead he focuses on the potential negative repercussions facing the author.

I found this article at Free Money Finance, who asked his readers the same question. Their responses mainly fell into the no category - this is not ethical. But reader Bob brings up the point that I've read before, this is a contractual issue and since the terms for violating the contract are clearly spelled out, there is no ethical issue involved. I've seen similar arguments made on LA Land, the local Los Angeles real estate blog at the LA Times. Read the post about Condoblue, who explains why he is walking away. Most of the LA Land readers felt this was not a moral issue, perhaps they are jaded by the state of the local real estate market. I found the difference in opinion between LA Land and Free Money Finance readers interesting, why do they have such different takes on this matter? What is your opinion, ethical or not?

Underwater with No Hot Water!

2008-11-30T20:08:00.000-08:00

I went to take a shower this morning, there was no hot water. This happened a few days ago too, the pilot light went out on the water heater. Last time I followed the instructions on the heater and soon the pilot was re-lit, problem solved. Well this time the pilot is refusing to light. Thank goodness for gym memberships, we headed over there for showers. After a little online sleuthing the most probable cause is a faulty thermocouple, an easy fix for DIYers.

We headed over to Home Depot for a replacement, hats off to the lady trying to sell us a new water heater who had no idea what a thermocouple is. Where do they find these idiots? She actually said she’s never heard of one and what does it do, but her specialty is selling us a new water heater. I haven’t tried replacing it yet, Mr M expects me to do it. Good thing I’m handy. Cross your fingers it works!

Update: I am handywoman extraordinaire, give me a wrench and get outta the way! We have hot water once again and the replacement was very simple.

What I Love About my Underwater House

2008-11-28T15:55:00.000-08:00

The economic news and housing statistics have all been grim lately. More homeowners are finding themselves underwater as the year wears on. Instead of doom and gloom, today I’m focusing on what I love about my underwater house.

History

I have a weak spot for older homes. I live in Los Angeles, a city who passionately turns her back on history. I grew up in Virginia, school field trips were to Jamestown and Williamsburg. You couldn’t help but soak up the past and grow found of places tracing back in time. In LA, the 1920’s mark the start of the city’s ascent and there are many homes dating to that period. I’ve put my home’s information in the sidebar, it was built during the mid to late 1920’s. Other than its history, it comes with an amusing story. What’s not to love?

Details

Craftsman, Spanish and art-deco elements collide to create a home with an identity crisis, one of many quirks. It has beautiful hardwood floors and textured plaster walls. It has coved ceilings in the living and dining rooms, with decorative plaster molding. I love the wide baseboards and the built-ins in some of the rooms. These are all details you don’t find in newly built homes.

Location

I’m only minutes from work and central to much of Los Angeles. It would take forever to get to Santa Monica, but it takes forever to get there no matter where you start. There is less traffic than when I lived in West Hollywood, weekend errands are pleasant by LA standards.

View

I have a million-dollar view. I also have a house that doesn’t make much of that view. If I weren’t underwater I’d add on to the rear of the house to have sweeping views of the downtown skyline and the mountains to the north. Still, what I have is better than most LA mansions and even 3 years later it takes my breath away each day.

Home Prices Keep Plunging; L.A. Sees Some of the Sharpest Declines

2008-11-25T13:37:00.000-08:00

The latest housing price data is out and the ugliness continues. According to the Case/Schiller Index (which tracks individual home prices rather than broad averages), nationally prices were down an average of 16.6%. The numbers are worse for Los Angeles, down 27.6% compared to the third quarter of 2007. Here is the article from the LA Times, Home prices keep plunging; L.A. sees some of the sharpest declines.

Selected Cities:
Phoenix, AZ: - 31.9%
Las Vegas, NV: - 31.3%
San Francisco, CA: - 29.5%
San Diego, CA: - 26.3%
Dallas, TX: - 3.5%
Charlotte, NC: - 2.7%

Foreclosures, Delinquencies Skyrocketing Among ‘Prime’ Borrowers

2008-11-25T06:31:00.000-08:00

From the folks at LA Times, more downbeat housing news - Foreclosures, delinquencies skyrocketing among ‘prime’ borrowers. Some of the statistics cited are terrifying – in August 43% of subprime loans nationally were at least 60 days delinquent or in some state of foreclosure. But as the title tipped you off, the cancer is spreading. In the same period, 7.5% of prime jumbo were also delinquent or in foreclosure. Jumbo loans are prevalent in bubble areas since prices were above the conforming limits (there is a temporary raise on the limit to around $730k, this expires at the end of the year).

Most of the story centers around underwater homeowner Judy Jones, who lost her government job at the beginning of October. She is trying to negotiate a loan modification with the Countrywide unit of Bank of America. I think this is the most telling part of the story:

"But the Calabasas lender declined to talk about changing the loan terms so long as she was current on payments, she said. So she intentionally missed an Oct 15 deadline, then called Countrywide again and asked for help.

The lender offered to reduce her total payment to $1,500 for three month, adding the difference back to her loan balance, she said. But when Countrywide said the arrangement would damage her credit score, she declined the offer, dipping into her savings to make the full payments.

Asked for comment early this month, Countrywide didn’t dispute Jones’ account. Representatives of the lender called later that day with a better offer. Jones said late last week that she was working with Countrywide to finalize a deal that would lower her payments for three months – with an option for significant, longer-term modifications."

She had to skip a payment to get anyone to talk to her, that’s just sad. I also don’t understand the late October 15th payment, she lost her job less than 2 weeks before that. Sounds like she was already in trouble. Remember my factors for riding it out, one of them was a good emergency fund. Even stable positions get eliminated, with unemployment and your emergency fund you can stay in your home.

Neighborhood Comps – October 2008

2008-11-23T20:04:00.000-08:00

I’ve seen some doubts expressed about my ‘underwater’ status. I can’t image why I would brag about being upside down, it’s a rather embarrassing situation. Now that sales have picked up I have a few comparison home sales to look at. Unfortunately, it’s not pretty. I believe these were all ‘distressed’ properties, the cheapest was sold at auction. My house is decidedly nicer, in better condition and with a view that these homes lack. True comparisons are difficult, these 3 homes are slightly larger than mine, though my lot is considerably bigger (8,000 sq ft). My home’s stats are in the side bar, you decide for yourself.

Comment to Share

2008-11-22T17:20:00.000-08:00

This is a comment I received on M is for Money, but it really pertains to us over here. I may represent some underwater homeowners, but I don’t represent all of them. I think it is important to show the range of views held by this otherwise related group. I don’t know what Mr Alan proposes to do to resolve this mess, or if he’ll even stop back by.

"I too have been thinking about creating an online community for underwater homeowners. My objective would be to create a have UH's band together to show TPTB that there are many more homes that need principal balances renegotiated so we can all move past this housing crisis.

I currently can afford my home, but could be underwater over $200K. I may walk away in the next year or two. I think many others could and would in the near future as well.

Due to personal reasons too complicated to go into here, I also am underwater over $50 K on an RV that I purchased when I had construction defect issues on a condo in 2005.

As far as I know, I could claim insolvency in 2009 or 2010 and get out from under these heavy weights on my shoulders. So far, I am paying on these debts for so-called moral reasons. However, I understand deep down that this is not a question of morality.

Bottom line, I would like to create or join a group of UH's that can create a large voice and deal with the financial powers that be to do something about resolving this housing mess."

-RichAlan633

Friday Links

2008-11-21T18:57:00.000-08:00

I've followed my own area's housing market since before I became a homeowner. On the market in other underwater cities, I'm clueless. I've pulled some articles from around the country showing how much prices have fallen, some are recent, others a bit dated. There are other cities I want to include, but information was scarce or only available as raw data. I haven't had time to crunch numbers, so they'll have to wait for later. If you've got any other cities or articles to suggest, leave me a comment.

Southern California
Price of Southern Califonia homes falls 41% from Peak

Northern California
NorCal median home price plummets 41 percent

Phoenix, AZ
Metro Phoenix Housing Prices Dip Again

Miami, FL
South Florida Home Prices Tumble 16.9 Percent

Las Vegas, NV
Home prices show sign of stability in October

Detroit, MI
Local Home Prices Fall 17.2% in August

Most ‘Underwater’ Homeowners Will Keep the House

2008-11-20T15:55:00.000-08:00

This is a follow up to yesterday's piece about riding it out. This should give hope to all those who are holding on. Reposted from the original at M is for Money.

The Wall Street Journal brings this report saying ‘Underwater’ Need Not Mean Foreclosure. Studies of previous real estate downturns showed that while large numbers of homeowners were considered underwater, only a small percentage actually ended up in foreclosure.

"Christopher L. Foote, Kristopher Gerardi and Paul S. Willen of the Boston Federal Reserve Bank studied more than 100,000 homeowners who were underwater in Massachusetts in 1991 and found that just 6.4% of them lost their homes to foreclosure over the next three years, according to a paper published in the September Journal of Urban Economics. The vast majority of homeowners simply continued paying as usual because they focused on the affordability of their payments, not on what they owed, and they believed home values would eventually recover."

I’m one of those underwater homeowners, see my story here.

Option 1 – Ride it Out

2008-11-19T22:32:00.000-08:00

You’re underwater, so what are your options. The first and most obvious choice is to ride it out, wait until the market recovers. This is a popular choice judging from our poll and happens to be the path that I am taking. Wait long enough and the combination of principal reduction and market rebound will turn you right side up. You are in a better position to ride out the storm if:

1) You have a stable income
2) You have an emergency fund with 3-6 months living expenses
3) You have a fixed rate loan

Not everyone fits that profile. Your odds grow a bit longer when:

a) You have an adjustable rate or interest only loan
b) Your area’s economy is in decline (see D’s story)
c) You have a high debt to income ratio

Obstacles

With a little luck, the people in the top group should make it through OK. That doesn’t mean life won’t throw a few obstacles your way. As I mentioned before, being underwater is an insecure position. Job loss, illness and divorce are all things we hope won’t happen to us. My parents currently have their house for sale, despite the poor market. They haven’t much choice, they are divorcing after 30+ years and neither wants the house! That is why I use the word luck, sometimes the unexpected happens. A good emergency fund is the best defense against bad luck, so make sure you have one. If you never need it, a nest egg doesn’t hurt either.

If you fall anywhere in group two, the road will be rougher. If you took out a loan in the last few years the rates are certainly lower than the historical average. You can expect adjustable rates and payments will be higher at some point. This is all a subject to be covered in depth, later.

Time Horizon

How long are you prepared to wait? We haven’t found the bottom yet, we can’t even begin to talk about a recovery. In the worst areas, it could be 10-15+ years before prices regain their previous highs. But have hope, as long as you keep paying down your loan you will be above-water before that. Where I live, if you can’t imagine sitting tight for 10 years, then riding it out is not for you. Other parts of the country are in better shape, where the bubble didn’t grow as large. If you do decide to stick it out, you’ll have some good company. Like me!

Underwater Times Two

2008-11-18T20:39:00.000-08:00

It’s remarkably easy to find yourself upside down on two houses at once. You take an area with a declining economy and mix in the promise of another city. This story came via email and I wanted to share it because it all seems so normal. Every year thousands of people move for a better job or a better life, what happens when the house you left behind doesn’t sell?

"Miss M,

My family lived in a small rural community in MI and both had good jobs for the area, but my husbands was 7 days a week, 10-12 hours per day and switching shifts all the time. He got a fantastic job opportunity on the west side of the state about 2.5 hrs away for a managemental position with a good company. We had a house, purchased 8 years ago with 4 acres that we had purchased at a good price given the condition, remodeled all by ourselves and had added a bedroom after both kids were born. We did not drive new cars or have any new, big ticket items. We went looking for homes in the new town while listing our current house. Our rural community had lost about 40% of the manufacturing jobs to Mexico, China or just business closures and real estate prices were never in the stratosphere like urban areas but were somewhat depressed. Our listing price a year ago, would have put us owing about $2,000 at the time of sale with what our mortgage amount was and the realtor's commission. (We had no one to show the house to.) We bought a house in the new town with 20% down and at a price that we knew we afford both mortgage payments for at least a year until I could find a job. The house we bought was not as nice as the one we left but the real estate prices were higher and we stuck to our budget. Now, we are upside down on both homes, even the one with 20% down from just a year ago. We can make both payments and are not behind on any bills with really good credit but not putting a dime into the savings. The realtor tells me now that we would be looking at a $20,000 loss at least on the first house if we were to sell. The realtor in the new town told us to just walk away from it and start putting the money in the bank. Our bank tells us that there is nothing that we can do, no refinance makes sense because we got pretty good rates from the start, and now our first home is no longer a primary residence so it is considered commercial. Our homeowner's insurance and property taxes now consider it to be commercial. We can't find renters who can make even half of the mortgage payment. I know why people walk away from their financial obligations. We intend to simply keep paying our bills and be thankful that we both have jobs that appear stable for now but we are stuck and it is a terrible feeling to not have options, not to turn a profit, but just to break even, or suffer a loss we could pay for. We don't have enough money in all of our accounts combined to cover the loss of selling the first house. Until I found your article and the subsequent blogs, I really felt like our situation was unique. Thanks for giving us a place to share our situation."

- D

D, I can say with certainty that there are other homeowners in your position. I recently read another story with a similar beginning, this time it was the little brother of Get Rich Slowly author JD. Here is his story, Drama in Real Life: Foreclosure!

Bailout News from Washington

2008-11-18T14:24:00.000-08:00

First off, I don't think any bailout is going to fix the problem or help someone like me. Underwater but current on your payments, no soup for you! But it's important to keep an eye on our elected officials and their latest hare brained schemes.

Lawmakers, Treasury lock horns on foreclosures

For anyone whose eyes glaze over at the mere mention of politics, I'll give you the condensed version. Lawmakers want direct assistance to homeowners in trouble, which makes sense since their jobs depend on said homeowners votes. The Treasury appears clueless, currently they only plan to invest in financial institutions, but they haven't completely ruled out helping homeowners. Basically they are making it up as they go along, merrily spending your $700 billion along the way. At the hearing FDIC Chair Sheila Blair gives a sobering statistic, 4-5 million homes could enter foreclosure over the next two years. Hope I'm not one of them! So what are your opinions on bailouts - good idea or waste of money?