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Sunday, Jan. 25, 2009 | Scott Lewis, thank you for your dedicated work. I enjoyed hearing you on the KPBS Editors Roundtable this morning. I just want to clarify what appears to be a misunderstood aspect of the real estate market. Perhaps you’re aware of this but it was not something you wished to emphasize — Being underwater with a property is not necessarily the result of a bad loan nor is it associated with the the inability to pay the mortgage. Almost everyone who bought a home in 2005 and 2006 is underwater. Some who are underwater had 20 percent down with low interest fixed loans and can continue to pay their mortgage forever. However, many such owners will try to claim hardship and do a short sale so that two years later they will be able to again buy the same property for $100k less. More than foreclosures, the short sales drag prices down, and then even more mortgage payers want to walk away from their disappointing purchases. They made a promise (promissory note), but they don’t want to appear foolish by waiting several years for a return to equity.

Now prices AND interest rates are low enough (in some neighborhoods) that qualified investors with 25 percent down are snapping them up for rentals — If tenants can pay for the mortgage they appear to be a safer bet than stocks. As soon as prices appear to be stable many of the renters who have survived the corporate layoff season will make their move to become owners too. Hopefully, the government, without forgiving any loans or lenders, will make conditions right for refinancing problem mortgages and for helping QUALIFIED first-time buyers to buy with quality, affordable mortgages.

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