If you owe more on your home than you think you can sell it for, you have a lot of company. About one in three homes in Atlanta are mortgaged for more than they are worth.
The good news today is that we have a number of options to help people stay in their homes. That’s a change from the first years of the mortgage crisis, when it was difficult for someone underwater to get help.
The revisions to the Home Affordable Refinancing Program can help people who are deeply underwater by removing a cap that used to restrict the program to owners who owed no more than 125 percent of the home’s market value. With interest rates at historic lows, our housing counselors are busy these days helping homeowners determine if the new HARP is a good option.
Of course, refinancing won’t work for everyone. Many people who come to us for foreclosure counseling have lost jobs, gone through a divorce or suffered some other financial setback and can’t afford to live in the residence anymore.
If a homeowner can arrange a short sale — selling for less than the loan balance with the lender’s OK — they can rebuild good credit much faster than someone who simply lets a foreclosure happen. The foreclosure process is much more expensive for lenders than a cooperative deed transfer, so many have “cash for keys” and other relocation programs.
The homeowners who call my agency for mortgage help almost always want to stay in their homes, whether they are underwater or just behind on their mortgage payments. Most people don’t buy homes the way they invest in stocks. Their homes tie them to their communities. Their children go to the neighborhood school. They have a designated wall they use to chart their children’s growth.
Others aren’t so sure. They will ask our counselors to discuss the pros and cons of “walking away” from the home and starting over. For people who invested in a home primarily for a financial return, it might be tempting to do that.
But we caution them.
“Walking away” doesn’t mean they are necessarily done paying for their home. Walking away without working with the lender means breaking a contract. And there are consequences to that here because Georgia is a “deficiency” state. This means that years down the road, a mortgage holder can sue for the difference between the amount recovered at the foreclosure auction sale and the loan balance.
Not many people who call us for help think of their homes as just another piece of their financial portfolio. Rather, “home” is a place of emotional attachment, a place where families gather and grow.
If you can still afford your home and it’s still a good place to live, does it make sense to “walk away” just because a piece of paper says it has less value?
Phil Baldwin is president and CEO of CredAbility
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