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Guest post by: Bud Gragg Become an Author

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Roughly a quarter of homeowners in the U.S. are dealing with an underwater mortgage, and that number is probably going to rise to as high as a third. How did this happen? Wasn't residential real estate supposed to be the one guaranteed solid business investment a family could make?

Well, have you ever heard the phrase “land speculation”? Because what it comes down to is that's what our whole country has been doing for more than 15 years.

Here's what happened. In the 1990s, the federal government and Congress got the brilliant idea that more people should be able to actually own their home—that home ownership was the “American Dream,” and that little things like being able to actually afford a mortgage didn't matter quite so much.

So the government told the mortgage industry, “Make it so! Extend mortgages to everyone you possibly can!”

The mortgage industry, smelling a huge source of profit, was all too happy to comply.

And so the mortgage industry became creative. They sold mortgages to people based on their stated income. That's right—they stopped doing income

checks! Now, wouldn't you be tempted to add another few thousand or so to your stated income if it could get you that really cool deck you absolutely love? Let alone if doing so was the only way to get a mortgage and start taking part in that “American Dream” that people were blathering about?

Then the industry came up with something called adjustable rate mortgages, or ARMs. These beauties give people an artificially low payment for 1-7 years, depending on the terms you got. Then they reset to reflect inflation and keep resetting every year.

Finally, the mortgage industry realized that it was sitting on a lot of bad mortgages. But why keep those mortgages when they could bundle them up, lie about their value, and sell them like hotcakes?

And that's exactly what they did.

Now, we're not claiming that individual homeowners are all totally in the clear here. Kristin and I were like a lot of people. We let ourselves be sold a fantasy world were real estate prices would always rise, letting us take out more and more expensive mortgages. And because we're Realtors, we invested heavily in residential properties, too.

But we just knew that, as long as our businesses were doing well and our property values kept rising, everything would be OK. So we also went ahead and did what a lot of people just like us did—we used that rising equity in our investments to take out multiple mortgages and lines of credit so we could have the shiny toys we loved.

However, what's also true is that the mortgage industry has more than a fair share of the blame to bear. Even the people with good-enough jobs and education to have a good income don't necessarily understand mortgages, and the industry was more than happy to take advantage of that fact and encourage them to take out the biggest mortgages possible.

And it was the industry that started bundling those mortgages together, lying about their value, and selling them on the open market.

But no matter who's most to blame, the fact is that the underwater mortgage tsunami is here to stay—probably for years. Our job now is to protect ourselves from this mess, whether we individually helped to create it or not.

Don't worry about the mortgage lenders. The government bailed them out, as you know. What it comes down to now is protecting yourself and your family from the financial consequences of your underwater mortgage.

Related Articles

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  Underwater Mortgage Loan Modification: Just a Band-Aid?
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  Short Sale Training Boot Camp for the Underwater Mortgage Homeowner
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Referred by: http://www.meetkarennewman.com/

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