What To Do About An Underwater Mortgage

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.â€ 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 educatorâ€ 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,â€ 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.â€

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 “underwaterâ€ 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 – NevadaÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 68.1%

2 – ArizonaÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50%

3 – FloridaÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 46.4%

4 – MichiganÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 38%

5 – CaliforniaÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 32.8%

6 – GeorgiaÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 28.1%

7 – LouisianaÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 23%
(tied with the following states)

Maine

Mississippi

South Dakota

Vermont

West Virginia

Wyoming

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