Reply to What I don't get: When people complain that they are drowning because their house is underwater

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[quote=Anonymous][quote=Anonymous][quote]My point is, I can see how someone could easily get caught up into buying more than they can afford or pushing their incomes. Then their adjustable mortgage goes up at the same time their house value goes down. And they can't refinance because suddenly their loan amount is worth more than their home. So they legally CANNOT get a loan for more than the value of their house. This is why people freak out when the value of their house declines. Because it impacts their abilty to refinance. [b]I actually think this law/rule needs to change. If you have a mortgage on a house, you should be allowed to refinance for that same amount[/b].[/quote]

No matter what the current value of the house is?  Sorry, but that's insane.  After all the wailing and gnashing of teeth over those evil banks which gave out all these terrible loans (and I don't totally disagree with that, by the way), you suggest that lending institutions be permitted (or even required) to refinance a loan no matter what the value of the underlying collateral is.

You know what another definition of a bad loan is?  A loan for which the collateral securing the loan doesn't fully cover the loan.  The only way to do this is with significant government subsidies or insurance.  As a business proposition, it's absurd.  [/quote]

I agree.  Absolutely.  I find it amazing that so many people who are underwater on their loans blame the banks.  The banks did not lower the housing market so that home prices depreciated.  The absolute worst are the people who took cash-out refinances, but even the ones who took bad loans or bought homes they could not afford because they didn't plan for market depreciation, just assumed that the market would appreciate, created the problem.  Why should the banks be losing money for home owners bad decisions?  Sure, they can afford a handful of defaults...but no banks prepared for millions of home owner defaults.  That's where the crisis came.  The sheer number of people and the total cost of the loss cost the banks billions of dollars.  And those recommending strategic defaulting are also contributing.

So, if your home is only worth 75% of the outstanding principal value on the loan, why should the bank be forced to refinance for a LOWER interest payment?  Whose going to pay the bank for that loss?  The original contention that the law should allow you to refinance for the same amount as your current mortgage is ridiculous.  Why are you, the homeowner, allowed to cut the amount you agreed to pay to the bank?  Why should the bank be forced to lose money on a transaction?  The banks only refinance when they can make money off of it.  If it is profitable for banks to refinance, they will.  If not, they won't.  And that's as it should be.[/quote]

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