I think what this article is missing is that any increases in food, fuel, or goods will probably cause more straigetic defaults.
How could that be a source of future trouble? Because, with home prices stagnant in much of the country, payments on mortgages that are underwater could absorb billions of dollars that might be used for other forms of consumer spending — a drag on family finances, the housing market and the overall economy.
And how long this problem could last? A lot longer than most people think.
But nobody is expecting a return of rapid real estate appreciation any time soon. If home prices were to rise at an annual rate of 3%, not an unlikely scenario, it would take the Hineses about 11 years to get to a point where their mortgage balance was even with their property value.
Refinancing the Hineses' 6.5% interest loan could be a big help, saving them almost $600 a month. But lenders won't even consider them.
And unless borrowers fall behind on their mortgage payments or face a high risk of defaulting, there's little chance that lenders, even with federal incentives, would reduce their principal or lower their interest rates.
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"They feel completely left out," said Fred Arnold, past president of the California Assn. of Mortgage Professionals, referring to many underwater borrowers.