The Pharmacy Chick

Comment by Sheri

February 29, 2012 @ 8:07 pm

As someone who is underwater right now I would love to explain how it can happen even when you are being “responsible”. We bought our home in 2005 and put down 20%. Everything was great in fact our home appraised at almost $100k over what we paid for it in under a year. which is what a lot of houses did before the collapse

Then the economy went in the tank. My husband lost his job in 2007 and was unemployed for almost a year. When he finally did get a job it was bringing home $20k less a year. During that year I became disabled and was then unable to work for almost a year and now can only work part time bringing home $50k less a year. When money got tight we decided we had no choice but to sell our home. We tried for two years to sell our home continually lowering the price… But there were no takers even though it was a beautiful home in a good neighborhood.

Now after five years we have depleted all our resources. I think being able to stay afloat with three kids and large medical bills is a testament to how well we managed our money before and after this all happened. But now we have no choice to work with the bank to either get a modification of our mortgage or we will be foreclosed upon as our home is worth significantly less than what we paid for it seven years ago. so I take it they wont refinance at a lower interest rate for the term of the loan? I am sure they wont re-value your home, but they wont refinance to keep some money coming in??

Unfortunately, this story is told too many times. Are there some irresponsible people out there? Of course there are! But I believe the majority of the people out there thought that worst case scenario would be that they would have to sell their home only to find out the carpet had been pulled out from underneath them.thanks for sharing your story also!

Comment by Jube

February 29, 2012 @ 8:20 pm

I’m underwater on my mortgage. When we bought our house in 2005, everyone (and I mean EVERYONE) told us that in our market (east coast), housing prices never went down. We decided to jump in since it was only going to get more expensive to buy our first house if we waited (so we thought).

However, when we bought, we knew we wanted a family, so we bought a house we could afford on just my husband’s salary. We’ve been faithfully making our mortgage payments every month for the past almost 7 years. Now we have two small boys and with a planned third, our little house is getting very cozy. Since we can’t get out of this house (underwater) or refinance to a lower rate (underwater) and since I’m a student at the moment, we can’t afford to pay more on our mortgage we’ll be here for a long time more. Our 5-year house has turned into our 10 (or 12 or 15) year house.

I get it. Buying a house is a risk like any other investment. We should have expected that it could go down. We’re in pretty good shape, all things considered, since we do have a cozy little house that we like. Here’s the thing though, we got sold a big, fat, bill of goods. We did all the right things. And now we’re stuck. End of the world? Certainly not. When you consider that the people getting all the help are the people who got the gazillion dollar mortgage that they can’t pay for anymore because the rate readjusted to eleventy million percent, yeah, I’m a little bitter.

The difference between the car and the house is that in 4 or 5 years, you’ll own that car. And even if you don’t and have to get rid of it, you could probably scrape together the couple of grand you would need. With houses, you’re talking about great multiples of those amounts. We’re stuck. And even though we’ve been paying our mortgage for nearly 7 years now, we don’t have ANY equity to roll into a larger home. And I’m not looking for the Taj Mahal. A second bathroom would be nice.

So, who is responsible? I wish I knew. Is there shared responsibility? Sure. Logically I knew that it was possible our house wouldn’t improve in value. I certainly didn’t expect the 25% drop though. What’s next? For us we’ll just keep on slogging away until, someday, we have enough equity or savings or both to move into a larger house. A lot of people will walk away though, take the credit hit, and buy their McMansion in a few years when their credit has recovered enough to do so. And that will just make things worse in our little neighborhood.excellent comment, thanks for sharing your story! The reason I posed this question today is our neighbor across the street is doing about to be foreclosed…bought his house in 2005 and tho they both work, ( I dont have all the details) are very underwater and are walking away from their home so they went to shortsale before foreclosure..and are in fact renting a house now about 5 blocks away. My neighborhood houses went from 450k to 300K in less than 3 years. Since we bought ours 15 yrs ago, we are fine..but nearly everybody on our block has been here for ever..but this one family.

Comment by Eileen

March 1, 2012 @ 2:42 am

I live in Europe – and it is easy to see major differences between countries and how in some countries people got in a mess.

In the UK since the war house prices have climbed steadily but when I was young in the 50s it was still looked at as a very strange idea to think you could own your own home if you were an ordinary working person. Dad always wanted to do so and eventually did manage it. House “values”/prices increased over the next years and it was common to buy a small house, do it up and sell it to get a bigger one – but few people ever became unable to pay their mortgage. In the UK – then came the 80s and Mrs Thatcher who told everyone they could have everything, they could have it now and it was their “right” to own their own home. There wasn’t massive unemployment, if you had a house it would increase in “value” – right? And as it rose in value you could borrow money against it to buy all those other things. Where before you reinvested that “gain” in your house you now bought things you couldn’t afford otherwise – but things like holidays, clothes, things that you would never be able to get the capital expenditure back if you sold it. But that was OK, your house would give you more money. And the banks happily handed it out, encouraged it because the spending boosted the economy – it was all good. They even offered you 125% mortgages – you were in massive debt before you even moved in, you hadn’t needed a deposit even.sadly, not that different here in the 80’s either

In other countries in Europe the attitude was different – unless you had at least 30% to put down you had no business buying. Your repayments on your mortgage needed to be the same level as you would pay in renting which was common and not looked down on – as it was in the UK. In some countries that hasn’t changed (where I live now in northern Italy) but at the same time, house prices haven’t shot up as much as you talk about in the US or I have seen in the UK. There was an increase in the late 80s in Germany and then house prices fell again but except in certain areas where the US and UK armies moved out for example and left an excess of housing it wasn’t too much of a problem.

So I think there are 2 types of people who end up underwater – some who are downright irresponsible and don’t have a safety net and a lot who are desperately unlucky. Some people have to move – for work or other reasons – and anyone who bought at the peak of house prices could very quickly be left underwater once the prices fell again. If they then needed to move for work and were unable to sell at a high enough price to be able to cover the mortgage they would be in a mess. Others might have lost their job through no fault of their own and have bought relatively recently or at a high point of the market. And in the US – losing your job and health insurance and then being ill really is a desperate trap isn’t it? It’s bad enough for us in Europe where being ill can make it hellish to pay the mortgage but we never have to worry being ill will leave us destitute as we all have socialised medicine. It may not be perfect but it is there when you REALLY need it.

My OH and I have bought and sold and moved and bought and not sold but rented out and then sold – and over 35 years are solidly well off, not rich but with 3 small properties all 100% ours. We live in one, the one with the highest price – but that is immaterial, I need it to live in! We sold one house but at the absolutely worst time, it sold for £60K less than it went on the market at under the instructions of the agents and in fact didn’t get all cash, we got a smaller house and money to the sale price. That smaller house has probably lost more value since then but it is let to a young separated father so he can be near his little girls who live with their mother round the corner – it gives us a better income than that money would bring us in the bank. The house is there if we needed to move back to the UK. I don’t want to live in that town particularly but hey ho! The other small appartment is let to our daughter and gives us a bit more income on the capital. We’re in the letting market not from design but almost by accident but we knew what we were doing and have no enormous expectations.

Many many people have been encouraged to live “middle class lifestyles” on “working class incomes”, led to believe that they could count on their home to provide secured loans to spend, spend, spend. Others who have been fairly careful have ended up faced with loans they can’t service because of loss of employment. Others of us have been fortunate. But there is one certain fact – society has encouraged us to spend, to keep up with everyone else in buying and partying, whether we did it or not. Whichever of the groups we belong to we are all suffering to some extent now, some far worse than others, because of the excesses of others. There was this assumption that things would keep expanding and growing and money would always be “created” – I never did believe it. But on one occasion, as we returned to the UK after working abroad for 10 years, the bank manageer asked my husband how he felt about a loan that was costing almost all of his take home pay (it was at the peak of interest rates, nearly 15%). Luckily, my freelance income didn’t disappear and my MIL lived with us and provided a cushion just in case and we very quickly got on top of it as the interest rates fell quite quickly. But it could have gone very pear-shaped.

Here endeth my sermon on economics The bottom line? It isn’t always as simple as it looks – some were irresponsible, some were not. Some were irresponsible and lucky, others were careful and desperately unlucky. Some were careful and lucky.

Eileenwell written Eileen, thanks for the Euro perspective~

Comment by Kate

March 1, 2012 @ 8:03 am

Our house is not “underwater” but we are in trouble. We put down over 20% on our house. Our only other loan has always been my student loan debt. All the cars we have ever bought were bought with cash. We have no credit card debt. We even paid more on our mortgage on the twice a month schedule in order to pay off our house sooner.
I got sick enough to have to be moved from a night time position, to a day job which paid about $40K less per year. Then I got sick enough to lose my job all together. Then we incurred $20K in debt from me being hospitalized. My husband makes only about $250/week. And I cannot find a job in my field within 2 hours of our house. And unless I lie about my education level, I cannot find a job outside of my field. Right now, I am cleaning houses and make about $150/week.

So, we may lose our house. And we may lose all of our good credit. And even if we go bankrupt, we will still owe my student loan.

Comment by The gold digger

March 1, 2012 @ 8:20 am

I was raised by the same kind of parents – don’t buy what you can’t afford. Live within your means. Debt is bad.

I bought my first house in 2001. The bank approved me for a mortgage four times bigger than the one I got. I had no intention of committing to something that cost four times my annual income. What if I lost my job?

Which is exactly what happened. In 2005, I was laid off. I couldn’t find another job. However, I had been paying extra toward my mortgage every month since I bought it. Even when I was working, I still took my lunch to work. I went to the matinee instead of the evening show. I bought my clothes at consignment. That is, I lived way below my means. I did have the luxury of a decent salary, but I lived a thrifty lifestyle that was not burdensome or difficult and still would have been thrifty for someone making a lot less money than I did.

Let me put it this way: I saved money when I was a Peace Corps volunteer. PCVs do not get huge stipends.

I sold my house three years after I lost my job. I was within $360 of paying the house off. Being unemployed stank, but I had saved money for bad times. No, I didn’t have health problems, but even if I had, I would have been mostly covered – I got my own health insurance after I lost my job. A $5,000 deductible, but still, it was insurance. The insurance was the first bill I paid every month.

I know there are a lot of people who got caught up in very crappy circumstances completely beyond their control, but there are also a lot of people who lived irresponsibly. I feel bad for the ones who didn’t cause their problems, but the ones who lived paycheck to paycheck to finance their brand new cars, enormous houses, and fancy vacations? They deserve no sympathy.

Comment by The gold digger

March 1, 2012 @ 8:22 am

PS I paid off my student loans nine years early – I owed $13,000 on a $20,000 – $40,000 salary. I hate debt and do whatever I can do get out of it or avoid it.

Comment by Loren Pechtel

March 1, 2012 @ 10:39 am

I do agree there is an awful lot of irresponsibility behind the foreclosure mess but there is a legitimate factor here:

Few people stay in a house as long as the mortgage, especially when they get relocated by their job. What do you do when your job relocates you but you’re underwater and can’t sell?and there in lies a huge problem.

Comment by JP

March 1, 2012 @ 11:05 am

We are “underwater” on our home. We built our house in 2006. It is our dream home and we can afford every cent we spent building it. Our original mortgage was/is a 30 year fixed. In 2011 we tried to refinance to a 15 year loan- just to pay if off faster. Guess what? How is now appraised at $30,000 LESS that we owe. Ouch.

Good news: we can still afford our original mortgage and house. We have no need to sell or move. So we wait and pay it down as fast as we can.

Who’s to blame? I dont know. I consider myself lucky that it really doesnt affect us, since we can afford our original loan. Thankfully we built smart, saved up for a large down payment and didnt stretch ourselves too thin.

I guess Im writing just to say, not everyone “underwater” is an idiot, financially unstable or in buckets of trouble. And for that, Im truly thankful!!there seems to be a pretty strong theme here around the year 2005. I would imagine that nearly everybody that purchased a house in 2005ish probably is “underwater” but if they are still making their mortgage payments, they are not in any danger of losing their home. Our neighborhood held its ground pretty well for a while but it has tanked about 30% since about that time.

Comment by JP

March 1, 2012 @ 11:13 am

Oh, I also want to state – to me being underwater has nothing to do with foreclosure or being behind on payments.

Underwater means you owe more than your home is currently worth.

Seems maybe a few posts here are implying being underwater is the same as being in foreclosure, and it is not.so two different things, so why are people walking away from a house that is underwater? Probably an over simplistic solution, but wouldn’t it show some grace to the owners of the house ( and maybe the bank would collect SOMETHING on the loan) to just refinance for the value that house is now. A one-time market correction.If the bank forecloses on the mortgage, and re-sells it they are only going to get current market value anyway. If people cannot afford the current mortgage, but can pay SOMETHING,…isnt SOMETHING better than nothing? Take my neighbors…clearly they can afford RENT as they moved only a few blocks away into a rental house of similar size., but they are being foreclosed on their house they bought in 2004. Clearly, I am not a banker..I am a pharmacist, but this seems so desperate and cruel. My brother in law did exactly the same thing, short saled his house and rented nearby..his mortgage payment was more than he could afford and he was underwater so he walked, let the bank shortsale his house.

Comment by Anne

March 1, 2012 @ 3:01 pm

I’ve been told the banks actually make more money if they foreclose and resell, rather than refinance, which would explain the hesitancy to work with homeowners in trouble. I don’t know for sure if that’s true. At face value the math doesn’t add up, but possibly they come out ahead just by getting the “losses” off their books. Perhaps there’s a tax break to be gained as well?

Comment by JP

March 1, 2012 @ 5:34 pm

“so two different things, so why are people walking away from a house that is underwater? Probably an over simplistic solution, but wouldn’t it show some grace to the owners of the house ( and maybe the bank would collect SOMETHING on the loan) to just refinance for the value that house is now.”

I can touch on the refinance part. In order to refi our home we would have had to bring cash to the close to bring down our principle loan amount to equal the valued amount. $30,000 cash is not something we felt comfortable parting with in one lump sum.

“A one-time market correction.If the bank forecloses on the mortgage, and re-sells it they are only going to get current market value anyway. If people cannot afford the current mortgage, but can pay SOMETHING,…isnt SOMETHING better than nothing?”

I would think so, but like you said- Im a pharmacist not a banker!

We also know people who have walked away and let their home foreclose. What would bring someone to decide to do this? Who knows. Im too conservative to do that, plus I value our great credit rating. The people we know did it because they werent particularly attached to the home they were living in, we not planing on it being their forever home so they just split.

In our situation, this IS my forever home. Regardless of what the appraisal said, its still worth it to me and I would dream of going elsewhere. I built my forever home before I hit 30, and it will be paid off before Im 45. Whether its worth what the appraisal said or not, I still borrowed the full amount to build it and I still owe that amount. Thankful my job allows me to meet that financial obligation.

Comment by Hypatia

March 1, 2012 @ 9:18 pm

Underwater to me means simply that you owe more than the house is worth. It’s not uncommon in some places for the housing values to be half what they were. So, if you bought your house for $300k, and it’s now worth $150k, and you put your savings into the down payment in the house… Which could have taken 10-20 years to save up for… You now have no savings, no equity, because you can never get back out what you put into the house… Unless you stay there for 30+ years, I suppose)

The huge problem with this is that Americans are a really mobile people… We move often. In a lot of cities that were hardest hit by the recession people lost their jobs… And then, what for most people acts as their “savings account” and safety net– their house– notw- essentially has no value. If they sell they will STILL owe the bank the difference on the mortgage.But most people can’t sell even if they want to, and certainly not for the price they need to get in order to pay the bank back for their mortgage. But they need to move to find new jobs in many cases because local industries are disappearing. Only way out is foreclosure, which is what makes logical Sense under those circumstances.

Comment by Pharmaciststeve

March 2, 2012 @ 9:37 am

The largest portion of bankruptcies are based on health cost, job loss for some reason (health, economic downturn etc)

IMO.. the real estate bubble was caused by a few things.. GREED by people,the banks, real estate agents and mortgage brokers.

The volume of real estate that was changing hands was so larger that real estate agents were willing to take 3%-4% commissions… try to get one today.. to go that low on their commission.

The stock market had just crashed.. remember the “new paradigm” of the stock market… stocks would go up “forever”…
Then the confirmation bias kicked in.. that “real estate never goes down”… lets put our money in real estate – because it is safe.. WRONG…

If I wait any longer.. I won’t be able to afford any house.. I will be renting forever.

Banks criteria for borrowing money was if you could breath on a mirror and “steam it up”

“GOLD” is now the “next big thing” for the last couple of years… it is ready to fall off a cliff… if you notice the commercials.. they are now starting to push owning DIAMONDS as a investment.

Mother-in-law went into a ADL unit ~ one year ago.. we just closed on her house on Friday.. We had to “be the bank” to get it to sell… after paying real estate & legal fees… we only had to pay out of our pocket $139.00… I had the house appraised and we ended up selling it for ~ 20% LESS than the appraisal. Luckily… she had owned the house since 1958 and it was debt free.
I contact a officer at our bank and see what we would get .. if we sold this note – secured by the house on the open market and he told me AT BEST 50% of its face value.. and when you add on the interest to be paid over 20 years… it would end up being in the 33% range…
Right now.. the banks can borrow money – from their depositors and the FEDS…and invest it in safe bonds for 3% spread.. that is what it takes for a bank to make money… a 3% spread between the cost of money and what they generate in revenue from its investment… why take a risk on people in an economy with a real unemployment rate near 20% and with oil prices going up… likely the economy will end up in a double dip and housing prices up in some markets and continuing to fall in others.

Responsible people.. who can afford their payments… pay their bills and take their financial licks.. Those that have a made irrational bets – interest only loans… or loans of 125% of house value.. purchased much larger houses than they can really afford… deserves whatever consequences and collateral personal damages that they incur.
Hopefully, our bankruptcy system will protect only those people who have some unforeseen circumstance – large health bill, disability… that has caused them to be in such a place and let them get a fresh restart.

Comment by jen

March 3, 2012 @ 12:11 am

I was very lucky when I bought myself a unit as a single female in Australia. This was the year 2000 and I was working as a physiotherapist. I had about $15000 in savings. I made the wise decision to buy something affordable for me which meant a 1 bedroom, 60’s unit in a reasonable suburb not far from the city. At that time it cost $70 000. I put down a %10 deposit and over payed into my mortgage. Several years later I had a breakdown in mental health which left me on gov benefits and/or part time pay even until now. I left physio and currently work as a part time pharmacy assistant on minimum pay. I am age 40. Despite all this I managed to pay my unit off in full at the end of 2010 I am now debt free totally. The only reason that I managed to retain my home is that I didn’t over extend myself when I bought it and it was literally the year before house prices here jumped hugely…I was v lucky. Now it is worth approx $250 000.

Comment by Tracy

March 4, 2012 @ 8:12 am

You asked: “Probably an over simplistic solution, but wouldn’t it show some grace to the owners of the house ( and maybe the bank would collect SOMETHING on the loan) to just refinance for the value that house is now. A one-time market correction.”

As an attorney who tried to assist a pro bono client who was underwater on her home, I can tell you that banks certainly can permit a refinance, but very often will not. For reasons that they do not ever explain.

But more importantly, even with a new interest rate of, say, 4%, many people would still not be able to pay their new monthly mortgage because their income has been reduced for one reason or another over the past several years. Or, their salaries remain flat, which means they are being hit hard by inflation. For example, analysts are predicting gas to be as much as $5 a gallon this summer. That sucks for everyone, but for those living in places like New England, where I live and where many homes are heated by oil, this means not only paying $5 at the pump, but up to $5 per gallon for the hundreds of gallons of oil they will buy next winter season to heat their home (many home heating oil companies purchase oil well in advance of the winter season, so even if oil prices drop before next winter, the customer is often charged whatever the gas prices were at other times of the year).

Yeah, there are plenty of folks who were stupid and bought too much and saved too little. But there are also plenty who don’t deserve the situation they currently find themselves in, and can’t do much to dig themselves out of the hole.

Comment by Mark Etprophet

March 9, 2012 @ 11:14 am

What is your take on this matter–where-ever you are in the country/world? Who is responsible? IS there shared blame? Whats next?

Your right, being “underwater” simply means that you owe more on your home loan(s) than your property is worth.

A small part of me says that this economic tragedy is a “shared” responsibility because people who bought homes during the housing bubble should be held responsible for their own foolish actions.

But, after finding out that it was an unethical, immoral, and illegal scheme perpetrated by many in the highest levels of leadership in our country who have never been held accountable for their actions, I hold those people vastly responsible.

Unfortunately, many people (including all taxpayers) were sold a bag of goods and bought in to a corrupt scheme eagerly promoted by a financial and housing industry (and government) that KNEW it was corrupted and wouldn’t be held liable for it when it collapsed.

Housing was promoted by these criminal leaders as a guaranteed return on one’s investment, that history has proven fail safe. They encouraged home ownership to those they knew couldn’t afford their own homes and even promoted using one’s home as their own piggy bank. To make matters even worse, they turned around, bundled these properties as safe investments and sold them to unsuspecting investors.

Not everyone is a smart as you or bought a home with the intention of living in it the rest of their lives. People move because of job changes or for other seen or unforeseen circumstances. Of course, there were also some foolish and greedy people who believed what the real estate agents/brokers, appraisers, lenders, and the government was telling them about home ownership and home prices.not sure if I was smart or lucky..but I have no intention of moving any time soon

So, the term “underwater” has also become a way that the media, and angry Americans like myself, use to remind people of these crimes and to the fact that no leading perpetrator of these crimes has ever been held criminally-liable for this catastrophe.and by the looks of things, no one will…

http://vimeo.com/36548028