Home Foreclosures News: Why Underwater Homeowners Represent Drag on the Economy

Ran across this insightful post on a mortgage blog. It details — in plain language using “common sense” — why homeowners who are underwater adding to the economic woes this country is currently experiencing.

This is not to blame homeowners, mind you, but to point out how we’re all in this foreclosure crisis together.

If your neighbor is underwater, it affects everything from the price of your home; to what’s happening with your schools, police and fire departments (cuz homeowner taxes subsidize these, you know); to how long it will take your local job market to recover.

The article, Underwater Homeowners Represent Drag on the Economy, highlights this in a manner of speaking, stating: 

Borrowers who have negative equity are far more likely to default on their mortgages, either intentionally through strategic default, or unintentionally due to lack of income. . . . with home prices stagnant in much of the country, payments on mortgages that are underwater could absorb billions of dollars that might be used for other forms of consumer spending – a drag on family finances, the housing market and the overall economy.”

2 Simple Solutions to the Home Foreclosure Crisis

Cut the mortgage rate for ALL HOMEOWNERS — even those who are not facing foreclosure. This way, anyone who wanted to could refinance. This alone would give some much-needed ”economic stimulation” to many communities because many who have equity might pull some of it out to pay off other bills, go on vacation, etc.

Secondly, write down principles so that TRUE home values are reflected; not the inflated values most bought at years ago which probably won’t be seen again for a decade or more in many communities. After all, taxpayers have already bailed out many of the banks, so they’ve been “compensated,” in a manner of speaking, for the bad mortgages they’ve had to absorb.

So why can’t they write down principles. Many lenders have made so much money off of homeowners who had/have so-called “exotic mortgages;” many of which were interest only.

But then, these are COMMON SENSE solutions to the home foreclosue crisis . . . not something most lenders want to hear when it comes to helping homeowners prevent foreclosure.

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