Underwater Mortgage Refinance Plan—Is It Working, Is Walking Away Okay?

Homeowners are asking, “why shouldn’t I walk away from an underwater mortgage,” and this topic is one that has been up for debate for quite some time.  There are programs from the Obama Administration, as well as, the Treasury and FDIC that are working with homeowners that have an underwater mortgage by way of things like principal reduction plans or short selling.  However, many homeowners have yet to be helped and feel they are justified in walking away from their home, but is this the right thing to do?

There are those who say, “Yes!”  Some people are telling homeowners to just walk away from their mortgage since owing more on a home than it’s worth is pointless because those people believe that waiting for a home to regain value is going to take more time than it’s worth.  Also, people in the financial world are being given the blame for inflated home prices and people walking away from their homes feel that they are justified in doing so.

However, others say, “No!”  The feeling here is that as a homeowner, you took the responsibility of a mortgage and you should see it through.  Housing prices were inflated and homeowners expected the rise of the their home to be a sure thing.  However, as many have said, when an investment goes bad, you have to walk away, but as with stocks you walk away after selling for a loss.  That’s one of the main arguments people against the “walking away” movement have.  They feel that if you have an underwater mortgage and you are tired of making payments on the home, you should sell for a loss and not walk away.

Perhaps a happy medium can be found in the selling short or principal reduction programs.  Underwater homeowners who can sell their home and have the remainder of the mortgage forgiven or simply have the bank refinance their mortgage in a way where the principal is reduced may go a long way in helping homeowners get through a tough time in the housing market.