Who knows how many millions of “homeowners” there are out there like the ones that Bruce Krasting writes about in this item from the other day.
I have been working with a young couple for a year now. They have been up against it. They look pretty typical. They bought an apartment with a first mortgage and low down payment. Then they made improvements with a HELOC. He lost his good job and now works for less. She works long hours and they have a kid.
They are underwater on the 1st mortgage so the HELOC is worthless. Their monthly cash flow including debt service has been negative for a long time. They have been paying the mortgage(s) by drawing down more on the HELOC.
I advised them a year ago to stop the madness. They tried to contact their lenders for assistance but were told they did not qualify for a re-financing, as they were current on their mortgage.
I told them to stop paying. But they would have none of that. They had built up a credit rating that they were both very proud of. They did not want to lose that. But more importantly they felt that walking on IOUs was something that morally they could not do. I told them they were nuts but that I was proud to know them.
I sent them a link to last week’s Barney Frank letter to the big banks telling them to write down non performing second mortgages. I sent them the link for the BoA story and their program to write down principal for delinquent mortgage debt.
They called just now. They made up their minds. They will not pay either the 1st or the 2nd this month. The “entrance fee” to getting the debt relief they need is to not pay any longer. The cost will be a tarnished credit. They no longer care.
It’s too bad they waited so long, throwing good money after bad while others have been living in their homes “payment free” for a year or more. My guess is they’ll quickly get over their angst about being “deadbeats” and embrace the new, much higher cash flow.
Hopefully, the old blog will just stick around at Blogger for at least a few more years as I often refer back to it, particularly for juicy 2005-2006 housing bubble memorabilia – blogs are great tools to find out who said what and when they said it since most mainstream media websites tend to remove items after a few years.
In this case, there was no landscaping provided, no window coverings, and not much of anything else, so the owners must have put about $50K into it at the start, bringing their cost basis up to around the current 
I feel that another leg down is inevitable. I also think the government will try to intervene which may keep us in limbo for longer than necessary. The end could come and we could get back to business in a more stable, albeit lower price level, market if the government would just get out of the way. It is much harder to sell or rent in a market that is still trending downward or where there is a lot of lingering doubt. If we could reach a bottom and have prices stabilize on their own for a few months without any government action, it would become obvious to all that the worst truly is behind us and then all the pent up buying could come back. But as long as the market is being propped up superficially, the skeptics will continue to wait on the sidelines making recovery impossible. We need to bottom and start over so we can develop business models that will work. With the government involved and more bad news waiting in the wings, it is impossible to make long-term plans. The economy will just have to wait until the government gets out of the way, IMHO.
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