It’s pretty scary, really. According to recent reports, delinquencies are now over the 7-million level. In December, the various tracking firms announced that delinquencies were at about the 5.28 million level; now they are saying the actual number is much higher. By the same token, the lenders and the government are proudly announcing that they have “modified” about 150,000 loans. Do the math.  They have modified 2.14% of the delinquent loans. This has taken over a year (the program was announced in about March of 2009). I have not spoken to ANY person who got a modification that really meant anything–some are happy to get a temporary reduction in interest rate (often coupled with a promise to pay the accrued interest back over time), others believe they got a good deal because they got a “fixed” rate loan–of course, the rate is much higher than the rate they would be paying today if  they simply refinanced. Which the lender will not let them do, of course. The most recent information indicates that some lenders may be wavering in their commitment to take every property back that they can…B of A is even considering a principal reduction program (which they’ve structured so it doesn’t help the borrower much), and the Obama administration has indicated that it wants to “incentivize” servicers to do principal reductions…which makes about as much sense as giving them implied guarantees and free money and then insurance and support for the “poor suffering lenders…”  and a giant bailout and then gold everywhere for all the Wall Street execs (not that they should not have it if they deserve it, but if they get it from the taxpayers, that’s different) it’s amazing.  ”Too big to fail?” Not so much that as protection for the “politicians’ friends.” The real problem is that the only people who lose in this are the “little’s”–the people who have homes they can’t keep.  True, they bought them at inflated prices–but those were prices artificially inflated by easy credit, provided by the support of lenders who now want the money back twice–once from the taxpayer, and once from the govt.

It is a huge problem when your primary home is more expensive than you can afford. Here in San Diego, many rentals are less expensive than mortgages.  This has  been true for decades–the rental market has trailed the mortgage market by about $500-$1,000 per month since the late 1980′s, when you take taxes and insurance into account. If you are an investor, you find (the moment you consider a purchase) that leverage only works for you up to about 75% of the property’s value, and if you get a piece of property to “break-even,” it’s going to cost you 25% of the price to make that happen.  At today’s rates, you can borrow the rest, and still have a break-even.  Of course, this is only part of the story, because the mortgage interest deduction generally gives you back the extra you spend keeping your house.  However, some people just cannot make it, and have to sell. If you are among those, here is some advice (Please note: the decision to accept a foreclosure, short sale, or modification may have serious tax consequences; please consult an appropriate professional regarding your choices):