Benjamin Koellmann purchased a condominium in Miami Beach, Florida in 2006. He expected to sell his condominium by the year 2025 or maybe 2040.
Doing nothing about these “underwater mortgages” could encourage more bailouts, dealing another enormous blow to the US economy.
Mr Koellmann said: “People like me are beginning to feel like suckers. Why not let it go in default and rent a better place for less?”
After plunging real estate values for three years, after the government’s loan-modification plan raised the expectations of many Americans but satisfied only a few, after the bail out of banking institutions and the revival of their multi-million-dollar bonuses, a large group of US homeowners are left still wondering.
According to a new study, when a home’s value drops below 75% of the mortgage balance, the owner starts to think to walk away, even if he has the money to keep paying.
Millions of Americans are in this situation. Whether, or how, to help the homeowners is one of the biggest questions the US government faces as it seeks a housing policy that would lead to economic recovery.
When the real estate market began to collapse in mid-2006, the number of American homeowners who owed more than their home’s value was virtually nil. However, during the third quarter last year, almost 4.5 million homeowners reached the critical threshold, with their homes being worth below 75% of the amount owed on the mortgage.
According to First American, it would cost about $745 billion, more than the amount of the 2008 bank bailout, to restore all underwater mortgage borrowers to the point they were to break even.