- The Washington Times - Friday, June 5, 2009

Q. My husband and I have found ourselves in the middle of the mortgage mess,a place we never imagined we would be. When we purchased our home five years ago, our household income was nearly three times what it is now. My husband is in sales and is paid on commission, and his business has fallen off significantly in the last 24 months. I was laid off and had to take another job with a much lower salary.

We have drained our savings and cashed in our 401(k) accounts in order to keep current on our $650,000 mortgage, which carries a 6.25 percent fixed rate with an interest-only payment.

To make matters worse, a home in our neighborhood recently sold for $695,000 when homes used to sell in the upper $800,000s.

My husband spoke with a loan officer who told us we couldn’t refinance because the property value has dropped and our income is now too low.

I hate the idea that we are paying so much every month and not paying down our mortgage. I’m guessing there are many other people in a similar situation. Is there another option?

A. Unfortunately, you are all too correct that you are not alone. I spoke with a fellow yesterday who was desperate to decrease his payment and take cash out through a refinance. I told him that he simply doesn’t have the income to qualify for the loan requested. Based upon his own estimate of his property’s value, he has $200,000 in equity.

Considering his desperate need for cash, I suggested that he sell his house. He promptly hung up on me. The sad part about the conversation is that I was not trying to be flippant.

We can go around in circles playing the “blame game” on how we all got into this mess. Here’s a sampling:

Greedy, unscrupulous loan officers pushing easy mortgage money.

Irresponsible consumers refusing to take responsibility for taking out loans they can’t intrinsically afford.

Wall Street investors eager to provide billions to unqualified buyers based upon the false premise that their money is safe because property values always rise.

Federal government policies promoting easy mortgage money under the ego-driven goal to increase homeownership in America.

Please don’t shoot the messenger, but without knowing your situation in detail, it appears to me your conundrum is an example of the perfect storm created by the aforementioned.

We can blame the loan officer, we can blame Wall Street and we can blame the feds all day long. However, where does your responsibility lie? While unfortunate circumstances beyond one’s control can contribute to an economic hardship, should you question with 20-20 hindsight whether you purchased over your head? I frankly don’t know any job that pays commission that isn’t subject to income fluctuation.

Did you take out a $650,000 mortgage based upon your husband’s income during a cyclical peak? I’ve seen it a million times. Self-employed and commissioned borrowers qualify for the maximum loan amount based upon the assumption that their income will never go down.

It sounds like Wall Street’s assumption that lending money to unqualified borrowers is safe because property values never fall.

If you hate the idea that you are not paying down your mortgage because you have an interest-only payment option, simply make a larger payment every month.

An interest-only loan doesn’t prevent you from paying down principal, although from your e-mail, it sounds as if it may not be a good idea if your monthly obligations are already excessive in relation to your current income.

My advice is flimsy. Do your best to hang on, make your payments in a timely manner and cut living expenses where you can. Markets eventually turn around. However, I’m not going to sugarcoat your situation. If you don’t think you can maintain your current obligations, you should consider selling your property if you can walk away with some equity.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at henrysavage@pmcmortgage.com.

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