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Tsunami 2012: Why More of Us Will Find Ourselves with Underwater Mortgages

Guest post by: Bud Gragg

Article Overview: Very few people even considered this as a possibility from the 1990s on, but a tsunami was building then that led to the millions of underwater mortgages that are with us today. In fact, 24% of homeowners in the US have a mortgage that's under water, and one in ten of them owe 25% more than what their houses are worth! We know you want to think that we've hit bottom and that prices can only go up from here, but don't count on it.

Tsunami 2012: Why More of Us Will Find Ourselves with Underwater Mortgages

Very few people even considered this as a possibility from the 1990s on, but a tsunami was building then that led to the millions of underwater mortgages that are with us today.

In fact, 24% of homeowners in the US have a mortgage that's under water, and one in ten of them owe 25% more than what their houses are worth!

We know you want to think that we've hit bottom and that prices can only go up from here, but don't count on it.

For one thing, mortgage lenders already have an inventory of 1.1 million foreclosed houses. These houses are going to stay on the market, driving down the values of the other homes around them when the lenders sell them for pennies on the dollar. Worse, did you know that 50% of vacant foreclosed homes are vandalized?

And what do you think that does for the values of the surrounding properties?

But the currently foreclosed houses are only the tip of the tsunami of additional underwater mortgages we're going to be facing soon. Why? Because mortgage lenders became very creative in the 1990s when they were told they had to make mortgages available to more people.

For one thing, they invented something called an adjustable rate mortgage or ARM. ARMSs look great on paper—you have a very low payment for the first 1, 3, 5 or 7 years, depending on the terms you got. But after that term, the ARM resets to reflect inflation—and keeps resetting every year after that!

The bulk of the ARMs were written between 2005 and 2007.

What does that mean? It means that those mortgages are starting to reset. And for every homeowner who can't afford the new payments, we're going to have another house on the market. And another. And another . . .

And we all know what happens when there's more supply than demand, right? Property values go down.

Those figures don't even take into account the fact that, for a while, mortgage lenders were even writing mortgages based on stated income! That's right—they didn't even verify people’s income before giving them a mortgage!

That combination of greedy, stupid lenders and greedy, stupid, or ignorant home shoppers has led us to the tsunami of underwater mortgages we started facing in 2007. It'll also lead to the second wave of that tsunami that's starting now and will likely peak in 2012.

Now, we can get angry at the people who got us into this mortgage mess all we want. There are plenty of people to blame, from government no-nothings to corrupt bankers to even people who got stars in their eyes and let themselves believe they could really afford that extra $50K or $100K on their mortgage.

You could blame yourself if you were one of those people—like Kristin and I were—who got caught up in the easy credit you were afforded by constantly-rising housing values.

Or you can get active now and start planning how to handle the situation if your mortgage goes underwater. Kristin and I took that path—after we found ourselves underwater on several investment properties and our own home!

Don't do what we did. Don't wait to learn and to plan. Underwater mortgages are here to stay for a long while. It's best to know what options you want to pursue before you get caught up in the next tsunami!

Related Articles
  How Did We Get Here? Why Underwater Mortgages Are at an All-Time High
  Coming Soon to Your Neighborhood: Falling Home Values Mean More Underwater Mortgages
  Where to Look for Help for Your Underwater Mortgage
  More People Walking Away from Underwater Mortgages
  Underwater Mortgage Meltdown: What Caused This Mess?
  The Underwater Mortgage and the Cash-Strapped Homeowner
  Underwater Mortgages: The Inside Story
  Don’t Be Fooled Again-Avoid Underwater Mortgage Advice Scams
  Underwater Mortgage? Here’s What to Do
  Need Underwater Mortgage Help? Here’s Where to Turn
  Underwater Mortgage Advice: The New Financial Rules of Home Ownership
  What is an Underwater Mortgage?
  The Underwater Mortgage: What to Expect in Pre-Foreclosure-and Beyond
  Short Sale? Foreclosure? Options for the Underwater Mortgage Holder
  The Most Common Underwater Mortgage Mistakes-And How to Avoid Them
  Rebuilding Your Credit after Foreclosure on an Underwater Mortgage
  Save Our Home: Mortgage Help for Struggling Homeowners
  Underwater Mortgage Foreclosure Options- Yes, You Have Them and Here’s What They Are
  How to do a Short Sale on Your Underwater Mortgage and Avoid Foreclosure
  LTV: The Key to the Underwater Mortgage

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