Underwater

1/3 of America's home mortgages are still underwater.   That means the households owe more on the houses than the houses are worth.  People paid more for the houses than a realistic hoursing market says they are worth.  This is due to the housing bubble speculative frenzy people refer to as the bubble. People paid more than the "real"value because they were told that values would keep going up.

The current mortgage programs are helping mortgage holders struggling to make payments bylowering interest, but not addressing the "underwater" factor.   Being underwater is a better predictor of foreclosure than being out of work.   People are walking away from houses where making payments does nothing to create equity for them and their families.

As long as the values of the houses remain high, the banks don't have to book (account for) losses created b ythe housing bubble, so they're happy with the current situation.   There seem to be three policy choices:

1. Force the banks to lower the values to realistic values.   (just not politically likely at this pont.)
2. Foreclose on the underwater mortgages (which would put people out on the street and possibly initiate recession again.
3.  Provide govt subsidies to banks to compensate for lowering the book values of the houses.   More bailout larceny for the banks!


I haven't read a politically feasible plan to address this problem.   I sure like number 1.