UnderWater Mortgages Are Growing Threat To US Economy

Monday, October 27, 2008, PM | Leave Comment

In Tuesday, Oct 21 2008 edition of Reuters.com, there is an article about Under water mortgages are growing threat to U.S. by Tom Brown.

“Under water mortgages” are those when you owe more in mortgage than your home is worth. Let’s say, your home was estimated to be worth $150,000 and you owe $200,000.

So, for some reason – and these days, there are lots of reasons – you sold the house. To make calculations simple, you give $150,000 to the bank, you would still come out $50,000 short, in the red.

The article further states that about 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006. That means the number was double in 2007 than in 2006 and again almost double in 2008 than in 2007.

If these homeowners go into foreclosure, it would add to the oversupply of homes, delay a recovery in the housing market, and add to pressure on banks.

If you still have a job and are able to pay your monthly mortgage (mortgage+property taxes), I suggest you stay put. What I mean is “don’t panic.” You lose the $50,000 only when you sell it. We just have to wait it out if we can. The same can be said about stock market.

Read the article on Reuters.com in full: Under water mortgages are growing threat to U.S. by Tom Brown.

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