'Underwater' doesn't equal hopeless

Mood of the Market

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Feb. 14, 2011

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Second, five or six years back, home values were doubling and tripling so quickly that people got used to that -- so used to it that expecting your home's value to stay flat over four years actually wasn't unreasonable at all.

Third, some of the outrage that homeowners in this situation have is not just from the value, but from the realization that this value issue will actually trap them and their finances and their lives.

In the context of a home sale, a super-low appraisal can kill the deal and mean you can't move, unless you are willing and able to get a short sale green-lit by the bank (difficult, at best) or to write a check from your own assets to close the deal.

In a refinance situation like this one, a low appraisal means you're stuck with the "Incredible Growing Mortgage Payment" (a real-life horror parody of Lily Tomlin's "Incredible Shrinking Woman"), at worst, or a far above-market interest rate, at best.

In some cases, people perceive themselves as even physically and geographically stuck in houses or cities or even regions that no longer work for the other elements of their lives.

From my vantage point, the sources of this outrage are many. And there are just as many -- maybe even more -- ways this outrage manifests in homeowners' decision-making.

Many, once they realize they are deeply underwater, begin fantasizing about or even plotting to strategically default on their mortgages, fueled by anger and the (sometimes true, sometimes not) belief that they are making a slick/smart financial decision.

Others, whose payments aren't even adjusting and who wanted to stay in their homes until they learned how much (or, more accurately, how little) their homes are worth, panic and just start looking for any and all escape routes available, from selling to short-selling to loan modifications or even walking away.

Still other homeowners stay calm, cool and collected, staying put, and refusing to "lock in their losses" by selling, choosing instead to plan their home-related financial decisions more strategically, armed with this new information.

These are the types who do things like petitioning for a reduction in their home's assessed value and property taxes, or reprioritizing their home improvement plans around which project will create the most value. Even some of the calm, deliberate types will end up short-selling or defaulting, but not based on anger or upset.

I did hear that the doctor's appeal was rejected by his bank. I hope he'll move on to another bank, and avoid making knee-jerk, outrage-fueled decisions.

The anger of America's homeowners is deeply understandable, regardless of who is to blame for the situation, but it only exacerbates our nation's individual and collective housing crisis when that outrage drives irrational decisions.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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