A way out of the mortgage mess?
Just speaking from personal experience, I am not seeing a "mortgage mess" for ordinary people like you and me.
I am seeing a "mortgage mess" for people who made crazy choices during the blow-off top of the housing bubble, that is to say, 2006.
I am seeing (1) people who put no money down on a new, interest only, variable rate home loan on a very expensive house, and now have negative equity, or (2) people who cashed out all their equity in 2006 to "consolidate their debt", or remodel their kitchens with granite counter tops, etc., so they own fancy cars free and clear, no credit card debt, gorgeous kitchens, and negative equity.
Neither category can refinance, due to negative equity. The only thing that can save them is if they can bring cash to the refinance table, get a much lower interest rate, and have a high enough income to keep making payments.
Borrowing money to make the mortgage payments on a house with negative equity makes zero financial sense, especially since housing prices continue to drop.
They have the following economic choices: pay $1000-$1500 a month for an apartment; pay $1500-$2000 a month for a house, or pay $4000-$5000 for the mortgage on a house whose FMV continues to drop.
I am looking on the bright side. Housing is becoming affordable again. Yes, housing prices will continue to drop. Yes, we are going to have a recession. How long and how deep is anybody's guess. So, would I advise someone to take on more debt to stave off the inevitable? No, I'd advise them to rent, save their money, and wait. |
