Drowning or Waiving

In the article, Drowning or Waiving, it discusses the issue of many homeowners owing more than their house is worth. Approximately 25% of American borrowers are "under water" creating a difficult situation for the economy as a whole. Areas hardest hit are Nevada and Arizona. Over 4 million households owe at least twice as much as their home is worth. Estimates from 2009 suggest that 26% of defaults were "strategic" in nature. When homeowners default, the property usually is not maintained and the surrounding home values are pushed down. The government is looking at additional ways to fix the problem. The mortgage crisis, however, will not go away until the government supports the real estate market in effective ways. There are many people and groups to blame for the meltdown of the housing market. As a result, these people should bear the brunt of the economics involved. Homeowners that bought more house than they can afford, and are overleveraged, should take the hit and move on. Banks that made the loans should write off their losses and deal with the consequences of making loans to people that really should not have received the loan to begin with. The government up until recently, offered tax incentives to buy homes, such as the $8,000 tax credit for first-time homebuyers. This, coupled with extremely low interest rates, has increased demand for homes but obviously not enough. Homeowners are less inclined to walk away from their home if they have made a significant deposit up front when buying it. It also reduces the total financed amount creating a lower monthly payment, which reduces the chance of default in the future because lower mortgage payments are easier to make than larger ones. Laws and regulations need to be adjusted in the loan process to recognize this. In the long run, taking a more conservative approach to home ownership will benefit not only the individual homeowner, but the economy as a whole.