Could anyone explain the logic where depreciating home values are causing grief for people with AMR?
No matter an ARM or a FIXED, the primary issue is that many homes that were recently purchased at inflated prices are now considered “underwater”. Underwater is a term used to denote the fact that the value of your home is less than the principal amount of your mortgage. Imagine you have a mortgage of 1M while your home is only worth 500K. Yes, you are still paying interest on the 1M. The fundamental problem with this scenario is that nobody really knows how to price a house. Usually appraisers value a home based on its neighboring homes, vicinity to schools, transportation access etc. Those who have purchased a home long ago do not have anything to worry about. Not only are they usually not planning on going anywhere, their mortgages are reflective of a time when homes were cheaper. Those who have just recently purchased a home are the ones in trouble. Most of those homebuyers didnot even have any intention of staying in their homes for longer than 3/5/10 years. Remember the flip? Now
