Housing Challenges Still Loom in Several States

There was a very good article on Yahoo this week from Michael B. Sauter at 247wallst.com about the percentage of homes under water on their mortgages!

The article indicates that 22.8% of mortgaged homes in the country are under water. That is almost one in four. The article goes on to list the top 10 states with mortgages under water based on Corelogic's negative equity report.

Nevada is #1 on the list. Note that almost 2/3 of the mortgages are underwater! In fact, the amount owed on all homes in Nevada is greater than the value of the homes!

The state I live in, Arizona is #2 on the list. 48.3% of houses are under water! Almost one out of two houses are under water!

The positive in this is now might be a good time for all of you folks wanting to have a winter second home to consider Arizona. Houses are going for 50% on the dollar in some spots. Weather is great so come see the state, spend some money to help us get the economy going and take one of these significantly reduced houses and call it your own. In every recession (depression???) some people emerge better off than they were because they were employed, making money and had cash. Cash is still King. Key to financial success: Buy low and sell high!

I do want to remind folks that only a small percentage of these houses that are under water are due to what one could classify as LIAR loans or 110% loans or NINJA loans. (For those who who don't know what Liar Loans are they are mortgages that were approved without requiring proof of the borrowers income or assets. The worst of those loans are called Ninja Loans for no income, no job, and no assets.)

Only a small percentage were overly aggressive lending in my opinion. Only a small percentage are due to unemployment or being unwilling to do every thing they can to stay in their houses and not walk away. The majority of the people who are feeling this negative impact are hard working people who tried to do the right thing by continuing to pay their mortgages and other bills.

As I have written and said many times before, sometimes, No Good Deed Goes Unpunished!

I will use myself as an example. Michele and I borrowed only 70% of the appraised value of the house. Not 80, 90 or 100 or even 110%. 70% so we should have had 1/3 equity remaining in the house. To obtain the loan, we produced income tax reports, employment verification, copies of all financial accounts such as IRA's, 401K's, bank statements, etc. We worked hard continuing our pursuit of the American Dream. That home was going to supplement our retirement. Little did I know after doing all that we could that the house and the challenges that we did not create would not supplement our retirement but instead jeopardize it.

We are in process with a short sale that represents 51% of that appraised value. So borrowed 70%, selling it for 51%.

We are not alone. I hear horror story after horror story here in Arizona. These are not people who were duped. They are victims of people who did behave badly and actually committed fraud in the mortgage meltdown. They are victims of the people who just said screw it and walked awey. They are victims of large financial institutions that made Liar Loans and Ninja Loans their market niche. Keep selling the bad mortgage packages over and over. Who will ever catch us at this?

Okay. Enough negativity for today. My primary purpose in writing this is to make sure every one understands that when you start seeing all of the wonderful positive spins about how the economy is turning around, remember not everyone is participating in the recovery.

Remember to learn some lessons the easy way and not the hard way which seems to be the way that I learn them the best unfortunately. Pay attention to what has happened to others in this period. Learn from them. I use John Wooden's quote a lot, "It is what you learn after you know it all that counts!" It has never been more true than today!

What have I learned? I have learned a lot.

1. Keep your expenses low. You never know when this stuff is going to happen. You never know when you or your spouse are going to have medical issues or a parent or child needs some financial assistance.

2. Cash is King. Do your best to have access to cash (not under the mattress cash) to keep you going for a long time in case you become unemployed or unfortunate circumstances overtake you.

3. You can not save too much money.

4. Make sure you have adequate medical insurance that includes supplemental coverage like cancer coverage and medical gap coverage that covers things your medical insurance does not.

5. Don't think it can't happen in your neighborhood. It can and it did.

6. While I always knew real estate was a risk/reward situation I had never been in area that experienced this until now. Even if your neighborhood has never been hit, it can happen to you.

7. For me, housing decisions will no longer be based on how big I can get or how much money I can make. It will be based on how I like the house, it's livability, it's location, and the ability to fit it into my budget without requiring me to spend every waking moment trying to pay for the mortgage and to make the property more valuable. I am sure one day people will make money on housing again. That would be a happy side benefit.

There are other lessons I have learned but I have made this posting longer than I intended.

It is what you do everyday that counts!