What Would I Do?

Tonight (10/16/08), I was watching yet another newsmagazine program when I heard that familiar sound byte of the day: being upside down in a mortgage. Sometimes I hear the variant: being underwater. Readers, you will need to forgive me on this one. Listen up: this is only part of the problem! The problem is cash flow…combined with falling home values. The problem is that the folks who are having trouble being in this condition on their mortgages are the folks who are not making/cannot make their monthly mortgage payments and/or the folks who need to sell their homes immediately. If you are making your monthly mortgage payment, have no intention of selling your home, and have no other debt being secured by the value of your house, it is ok to be “upside down” or “underwater” for a short period of time. My husband and I were in this condition when he was a cancer patient. We owed over $100,000 on our home; the housing market in the Northeast had tumbled, valuing our house at less than what we owed on it; and the Navy transferred him to Virginia. Hard truth: he commuted for 29 months and I stayed put because we couldn’t make enough on a home sale to pay off our mortgage so I could move with him.

The other issue that is not necessarily a problem: lack of a down payment when purchasing a home. Why do reporters always bring this up? What is the purpose of putting money down on a mortgage anyway? Simple: it lowers your monthly mortgage payment, making your home more affordable, because it lowers the total amount you need to finance. My husband and I did not put any money down when we purchased our house in 1989. We financed the entire amount --- $125,000. Our interest rate: 10.50% fixed. Our initial mortgage payment, plus escrow: $1354.00. We used a mortgage company instead of a bank or a credit union, something we will never do again. They sold off our mortgage within about three days of closing. Thankfully, within a couple of years, the interest rate had dropped to 8.00%; we were not “upside down” in our mortgage at the time; and we refinanced with a credit union that didn’t sell mortgages. Sadly, not everyone is so fortunate.

So, what would I do now if I had a cash flow problem and an “upside down” mortgage? First, I would pay only the necessary part of my mortgage payment; no extra principal payments for awhile. If I absolutely had to, I would investigate participating in one of the “bailout” plans so I could stay in my home and renegotiate my mortgage. If all else failed and I had no other options available, I would short sell my house and take the loss. Second, I would find a way to generate more income, either by getting a second (or a third) job or by finding a way to make money online. Medical transcription work, maybe. With a plethora of baby boomers approaching retirement age, employment in the medical sector is certainly in demand. Being a home educator, tutoring might be a reasonable alternative as well. If either of those options didn’t pan out, I would check the local businesses in my area for help wanted signs. At the moment at least three businesses within one mile of my home need help: Auto Zone, Starbucks, and Dominos Pizza. I would focus on jobs that didn’t have huge travel or wardrobe expenses. That way my employment costs wouldn’t eat all my earnings. Third, I would find ways to reduce my expenses. For example, I would park my Subaru Outback in the driveway and start sharing the Mazda Protégé with my husband; the former gets 22 mpg, while the latter comes in at 34 mpg. This strategy would save quite a bit of gas money, especially now that the price of fuel is dropping. It would require some pretty creative time management, but it would need to be done for the sake of saving money.

More importantly, I would try to adjust my thinking to accommodate the short-term reality of longer work hours, less time with family, and a new definition of fun that looks more like roasting marshmallows with friends in the backyard than like an excursion to Disney World. If necessary, I would also patch up my differences with friends and family members with whom I could cooperate in money-saving, expense-reducing efforts like childcare, carpooling, hand-me-down clothing, and the like. Lastly, I would reexamine my expectations about what I desire versus what is necessary to rebuild my financial well being. A four-bedroom house with a family room and a pool may be what I want, but a three-bedroom apartment and a few trips to the beach may be what I need to survive.

Most importantly, though, I would pray…a lot…for guidance about the best course of action, for protection from unexpected events that could cause my family more financial distress, and for the ability to endure gracefully whatever challenges I had to face. Since living in Connecticut, I have experienced two recessions: one from July 1990-March 1991 and the other just after 911. This one, if it truly is a recession, will be my third since getting married. I didn’t panic during the other two and I don’t plan to panic now. I plan to trust God.

He [the man who fears the Lord] will have no fear of bad news; his heart is steadfast, trusting in the Lord. --- Psalm 112:7