Friday, October 24, 2008

Upside-Down = Bass-Ackwards

As I'm sure that any day now people from the US government will be reading this blog so that they can better understand all they don't seem to know or acknowledge about the current housing/mortgage/foreclosure/dumbass situation that is making me crazy. Any day. I can feel it! I just hope they hurry. My head is going to explode if I have to continue to see misrepresentations of the US economic debacle.

From the phoning-it-in folks over there at Reuters, comes the article " 'Under water' mortgages are growing threat to US". Aside from the poor wording, (Are they? Are the mortgages out there actually "growing threat"? Like in their garden? Cultivating the "threat" like marijuana up in the foothills? Come on, Reuters. Is that the best you can do?) what are they saying? That we've become like the lost city of Atlantis? Not enough scuba gear to go around for all homeowners? Don't we have enough to deal with as it is without having to live under water as well?

Actually, I kid. (It keeps me from leaping to my doom.) If your mortgage is "under water", you're not really underneath any water. Although you could be just as screwed as if you were. Reuters claims that "under water" on your mortgage is defined as "owing more on a mortgage than the house is worth." Now, maybe things have changed, I haven't seen the rule book in a long, long time (which has definitely factored into this mess), but that's called "upside down", not "under water". But as you can imagine, being "upside down" isn't all that great either. If you're "upside down" AND "under water", you're so screwed. What they call it isn't really my point, though.
They say that, as the financial situation in the US spirals to places not yet known, one in six "homeowners" are finding themselves upside down in their mortgage. I've quoted "homeowners" because if they actually "owned" the "home", they might not have this problem. I'd prefer the term "mortgage payers", but they go with "homeowners". (But it's just because they're clueless, that's all.) The article claims that because of all of the upside down-ness, it is "threatening the U.S. economy with a new wave of foreclosures and bankruptcies." To which I said, "It is?" (Actually, that's not all I said. The first thing I said was, "That's bull S.")
The entire article builds on that incorrect statement/assumption and it is misleading at best. See, what your home is currently worth has little to NO impact on your ability to make a payment on your mortgage. Well, it should have little to NO impact on your ability to make a payment on your mortgage. You're not paying for what your house is worth day-to-day. You're paying back the money you borrowed, regardless as to what you borrowed it for.

When is it, exactly, that a house did not become something to live in? People seem to think that their house is this big huge investment from which they will see great returns and great rewards and life of servants in togas feeding you grapes as you recline on a chaisse lounge by a pool with fountains. The problem with thinking that way is that it makes the assumption that one will always see a gain on top of their investment. The only way that is going to happen all the time is if housing prices continually increase. Forever. That's unrealistic, which is why it doesn't happen. Things do plateau once in a while. (Welcome to Once In A While. Next stop: You're Going To Be Here A While.)

Because people have the ill conceived idea in their head that if they become a "homeowner" that they will suddenly have a big, huge ATM with an unlimited supply of cash that they can just dip into (with a ladle or without) whenever they feel like it. Sure. That's realistic. It will have a garage where they can park both of their unicorns as well! And spare bedrooms for when Santa, the Easter Bunny and the Tooth Fairy come for Thanksgiving Dinner.

But aside from it being ridiculous to expect that your house will always increase in value, it's still unrelated to your ability to pay the mortgage. If you borrowed $100,000 and agreed to pay back $1,000 a month, that's the agreement. How does that change if your house is suddenly worth $90,000 or $80,000? You have still borrowed and spent the original $100,000. Nothing is different in that regard. How does that cause bankruptcy and foreclosure? Oh, that's right. It doesn't.

I don't recall hearing people complain about their car payment. I'll guarantee you that anyone with a car payment has a vehicle that is worth less now than when they bought it. (Yes, I am fully aware of 'depreciation'. It's the concept I'm working on here. The concept.) But are people getting their vehicles repossessed right and left because they're all upside-down or topsy-turvy or pell-mell on their loan payments? Of course not. It's the same...what? The same concept, correct.

Just as things go down, things go up. I find it amazing that these same people that are freaking out because the price of their house has gone down expect it to STAY down, but when the price of their house is going up, they expect it to KEEP going up. But if they thought it was going to go up in the first place, why would they think it would never go up again? Just sit tight, people. Oh, wait. That's right. You couldn't afford the house in the first place. You were only hoping to hang out long enough to see the price go up a bit so that you could make a quick buck. But that didn't turn out so well for you. Now you're in the position that is very similar to that of the illustration below as far as what you feel your house is doing to you. Good luck with that.

Just remember, upside-down, sideways, inside-out, bass-ackwards, none of those things have anything to do with someone not being able to pay their mortgage. If you hear or read stories that imply such a thing (and how can you avoid them? I know I've been trying to not listen to moronic sob stories for months now. No such luck.) be skeptical and ask lots of questions. If for no other reason than just to watch them squirm when they figure out you're onto them. (But not in the same way as the illustration above. Thank God.)

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