Fourteen Years

I am indeed intrigued by that graphic from two posts back showing the number of bank-owned units in South Sacramento. What really intrigues me, however, is not that there are so many...but rather, why aren't there more? Why are so many homeowers (sic) still paying on these underwater mortgages?

Mortgages aren't blood oaths. Just a contract -- a collateralized loan. Indeed, for all the times I've refinanced my own housal unit, and while I don't remember any language saying I am making a "promise" to pay, even if it did, it's a promise to do so or to surrender the collateral -- the unit.

In Elk Grove these underwater mortgages are [mostly] covered under non-recourse laws that prevent lenders from going after the other assets of defaulting borrowers. Do you really think your unit will recover its $125,000 loss anytime soon? How long, exactly, do you think it would take you to save that much money?

I can tell you how long. Fourteen years.

My original mortgage was $165,400. Today I owe $9,300. Had I never made a single additional payment, my balance today would be $128,700. That is...I've committed an additional ~$125,000 against my debt over fourteen years. It's about the only "savings" I have; truthfully, I'm broke otherwise.

Yet -- it shows that with extreme diligence and a modest degree of personal austerity, I've saved $125,000 over fourteen years. Didn't spend it on cars, on hookers, on blow, on vacations. Just paid down the mortgage.

This metric might offer a reason why someone might want to say fuck it and drive away from their Elk Grove housal unit. If you're upside down $125k, you can expect to lose at least the next 14 years of all your savings paying on an upside down asset.

Sure, prices might rise back up to that original value again...but you will be paying on that for that entire time, and value has nothing to do with what you owe. You still have the underlying mortgage to contend with.

Value has nothing to do with what you owe. Had anyone understood this, they would have never engaged into these mortgages to begin with. Yes, the two are [supposedly] related at the moment you buy, but after that, regardless of where the value goes, you still have that mortgage...that doesn't change. People who bought a mortgage at 5x their annual income, even if prices today were to rise 40%, they'd still have to deal with that mortgage at 5x their annual income.

And you heard everyone who did this say "In a few years, I'm gonna refinance."

Refinance into what? You still have that 5x mortgage! What, interest rates were going to drop another 2%? You were going to cash-out some equity? And do what with that, exactly -- pay off some of your mortgage? You'd be right back to where you were! Minus, of course, fees and points due the refi company for arranging such a deal.

Unless and until median housal unit prices drop to 2x, perhaps 2.5x median annual salary with some down payment, does it make any sense in my opinion to take on such debt. It would make sense to wait for prices to drop, therefore, because they are not there yet, to the consternation of another few million more existing homeowers who would become underwater. More foreclosures, and the further inventory, and the further prices will drop.

I dunno. You really want to buy your next housal unit, say in 2018, at 3.4 times your annual income?