Are You Underwater? Or Staying Afloat?

With nearly 25 percent of all American homeowners in some sort of mortgage trouble, it’s no longer looked upon as dishonorable if you find yourself in this type of situation. You have plenty of company and you may have even more in the months and years to come. The group of people in the most trouble is those who are underwater on their mortgage and unemployed as well. They do not have equity as a financial resource to deal with their everyday expenses and if they find a job that requires them to move, they cannot sell their home for what they owe on it. For people like this, it seems to be cheaper to just pack up and leave the house for the bank than to do anything else with it.

This is what puts the Obama administration and the previous administration in such a quandary. There is no simple solution to the problem which fits for everybody. The loan modifications made a small dent in the problem, but sometimes they reward the irresponsible behavior that got the housing industry into the crisis that it finds itself today. The Treasury Department has a program – the Home Affordable Modification Program (HAMP) – which has already provided permanent financial help to more than 116,000 struggling homeowners. But when you think that they are more than 1.7 million still waiting for help, it does not seem like it is doing enough.

That is why this administration recently announced a plan to make an even bigger impact on the mortgage industry. According to the press release, this new plan only “refines” the existing program by offering more opportunities for forbearance for unemployed homeowners as well as incentives for lenders to reduce the amount of money owed on the balance of the home. Some critics say it does not do enough if the program does not require lenders to reduce the principal and, according to them, it only affects about one-quarter of the number of homeowners who are underwater in their mortgage payments. At best, the program refinements will prevent some foreclosures but it will not be a solution to the problem which essentially stems from government debt, a weak economy and other problems.

It seems like there is no recovering from this mess right now. It’s not something that the government can just throw a bunch of money at and be done with it. This is going to take years of work and homeowners are going to have to learn discipline when it comes to their finances. This is not to say that they do not exercise financial discipline, but there are many who knew that they could not afford a home and yet they signed up for the mortgage. Maybe there should be some type of education classes included with these programs so we are not simply putting a bandage on the problem but creating a real long-term solution to help prevent this type of crisis from happening again.