The recession may be over, but full recovery is still a dream for many. Just over 30 percent of homeowners in the U.S. are under water. Not from global warming, but from the financial meltdown of 2008. The collapse of the housing market took down property values all over the country. Some homeowners owe twice as much on their homes as the homes are worth. The good news is that an average of only one in ten of those families are behind on their mortgage payments, the rest are current. Even in Nevada, where 70% of the homes in Las Vegas are under water, only 14% of homeowners are behind on their payments.
Though they are current in their payments, having so many families under water in their mortgages is not helping with the recovery. Being under water in their homes anchors families in one place. They can’t move to take new jobs. They can’t sell their homes to new buyers. They can’t buy homes from other sellers. The housing market is frozen. Homeowners have no incentive for making home improvements so that market is frozen, as well.
Having no home equity means families have less bandwidth to deal with other financial crises. Any new additional financial drain, such as a medical emergency or job loss, could push them over their own financial cliff. Is there anything homeowners can do about their situations? Where can they look for help?
The first place is the federal government. They have recently extended the application deadline for some programs to help distressed homeowners. The Making Home Affordable (MHA) initiative provides access to information about a number of options, including HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program).
HARP is intended to help those homeowners who are underwater, but current with their payments. HAMP is the program for families who are already behind on their mortgage payments. Not every underwater homeowner can participate in HARP because not all of them can meet all of the requirements, but if they can, then HARP permits them to take advantage of the low interest rates currently available by refinancing their mortgage, without being required to take out private mortgage ins(PMI payments can otherwise eat up the benefit of lowered interest rates.)
One of the requirements for HARP participation is that the home loan must have been sold to Fannie Mae or Freddie Mac. More information about these programs is available on the government sponsored informational websites for MHA (http://www.makinghomeaffordable.gov) and the sites sponsored by Fannie Mae (http://knowyouroptions.com) and Freddie Mac (http://www.freddiemac.com). The sites provide a lookup service homeowners can use see if Freddie Mac or Fannie Mae owns their loan. Whether the mortgages qualify for HARP or HAMP or not, the sites provide useful information and make a good starting place for homeowners looking for solutions.
Refinancing is not the only option available to homeowners. The most common thing being done is nothing. Families are staying in their homes, keeping up their payments and waiting for time and the recovery to raise their homes back above the waterline.
There are options that are more distasteful available. Defaulting on payments, walking away from mortgages, and negotiating short sales are all potential actions that homeowners can take. (One of the MHA programs, HAMP, actually helps homeowners to negotiate the short sale process.)
Taking the default option can severely damage a family’s credit rating and bad credit makes things more difficult. Bad credit interferes with getting better jobs, renting houses and getting other types of credit. Before taking the default path, borrowers should get advice from a bankruptcy attorney or an accredited credit-counseling agency.
It is important to use caution, not just because of the potential financial harm that can come from walking away from a home loan, but because families in deep financial distress are often targets for scam artists offering false hope.