What To Do About An Underwater Mortgage

Should you maintain or bail?

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What to do if your mortgage is trying to drown you

Recently, here in the hallways of BLACK ENTERPRISE, a few of us editors wondered if there’s any advice we should be offering to homeowners who are currently underwater on their mortgages. Over the last two years, we’ve given guidance to homeowners who can’t make their mortgage payments due to a sudden hardship; we’ve also written about options to explore to avert foreclosure. But, what advice should we give to homeowners who can afford their house payments, but are sinking underwater?

As just about every real estate enthusiast knows by now, a homeowner is considered to be underwater if they are paying off a mortgage that is more than the current value of their home. In banking circles the phenomenon is ominously known as “negative equity.” According to a new survey conducted by the Pew Research Center, some 35% of African American homeowners in the U.S. are currently underwater, compared to 41% of Hispanics, and 18% of whites.

To help me mull over the message BLACK ENTERPRISE should communicate to those of you who are experiencing negative equity, I got in contact with frequent BE contributor, Tara-Nicholle Nelson. Tara is a licensed realtor and a real estate lawyer, who spends the bulk of her time these days as “consumer educator” and public relations manager for the real estate search-engine, Trulia.com. “The decision about how to handle negative equity involves several highly individualized financial, credit, legal, and life planning elements,” Tara told me. “But, generally speaking, if the home still works well for your family and you can still afford the payments, there’s no urgent reason to do anything but keep on living there, owning it, and making the payments.”

While I agree with Tara’s suggestion, I’m also aware that it must be hard to watch your home lose value while listening to experts tell you to sit tight and do nothing–especially when it means your negative equity is dragging down your net worth. If you’re underwater and want to feel like a proactive participant in restoring some financial comfort to your life, take this time to build an emergency fund of six to eight months of living expenses and start aggressively paying down your credit card balances and other types of unsecured debt. If your home’s value has fallen considerably since your last property tax assessment, try applying for a property tax reduction. Taking each of these actions should put you in a good position for a time when housing prices begin to stabilize.

One important point to make about the “underwater” mortgage mess: It is by no means a minority phenomenon. One in five American homeowners is affected. If you happen to be underwater in your home, it’s more likely a function of where you purchased your home–and when.

Take a look at the states with the highest concentration of underwater homeowners (ranked 1 through 7):
1 – Nevada                                                68.1%

2 – Arizona                                                50%

3 – Florida                                                 46.4%

4 – Michigan                                             38%

5 – California                                            32.8%

6 – Georgia                                                28.1%

7 – Louisiana                                             23%
(tied with the following states)



South Dakota


West Virginia


Data as of 9/22/10; SOURCE: LendingTree

  • stevend

    This is terrible adivce. If a business buys a building for 1 million and the now its worth half that what do you think they would do? Second you dont own the house thats the lies the banks sell you to keep you in debt slavery. The first 15 years of your mortgage are interest payments so your throwing money away. Also remember the lenders targeted african americans with the most fraudulant loans alt a and interest only loans. The best thing you can stop paying your mortgage and sue the banks and wall street for fraud. Hire a lawyer and stay in your house for free for as long as possible if your mortgage is 2000 a month thats 24,000 a year in your pocket. By the time your lawyer gets done with your mortgage lender you could be in your house free for 3 to 4 years. Take that cash and buy a house outright after the market tanks. That way you won’t be a debt slave to the banks. And thats real.

  • michael

    I applaud the blogger for finally addressing the fact that many of us…whatever our race…are in the same boat…e.g.we are underwater, we can make the payments, but its almost insane to say someone can “afford” to keep paying on an underwater home. business has it right. an underwsater property is let go…it is unjust that business is treated so differently than the individual. This crisis was one that has many causes…but the four biggest are the banks, wall street, the government, and finally the public…yet, we the public are asked to shoulder all the responsibility. The Obama Administration, and congress have not addressed the housing crisis with any creativity, nor with conviction. its too bad, really, for if housing were better, people would be able to spend, etc…etc…etc…something must be done about housing before the skid causes deflation…which is a bigger issue than this…

  • I would like to offer different advice. 1. Your personal residence should not be viewed as an investment. It should only be viewed as a place to lay your head and raise a family. 2. If you are abe to make the monthly payments, do not worry about the fact that you house is worth less than what you originally paid for it. Focus instead on how to become ‘debt free” within the next ten to fifteen years. 3. A person who rents and a person who has a mortgage are in the same boat…both are renting. One is renting from a landlord while the other is renting from a bank. 4. If the interest rate on a mortgage is for example 6%, but the annual home appreciation rate is 4%, the home-ower (not a typeo) annual rate of return is -2%. 5. The idea that a person can build wealth through taking out a loan, has proven to be mathematically flawed. If you would like to continue this discussion, please visit http://www.plancorr.com and click on the “webinars” tab or contact me at (240) 473.1314

  • omar hasan

    Forget about the negative equity,it is the down side of the scheme the banks and real estate companies was playing on us, the home owner.Refinfnce all under water mortgages at current value at the lowest rate. This is the only way the ball is going to roll again