The damage done by the 2007-2010 sub-prime mortgage crisis and related frauds continues to haunt Americans. During that period many homeowners lost their jobs and subsequently lost their homes through foreclosure because of an inability to pay their mortgages. Other homeowners found themselves unable to pay when their adjustable rate mortgages increased their monthly mortgage. However, some homeowners did retain their ability to make payments on an underwater home or underwater mortgage.

An underwater mortgage (balance) is one that is greater than the value of the home. In theory, a homeowner could sell his/her house for full value and still have to pay off many thousands of dollars to the mortgage lender. Some homeowners decide it is their best interest to “walk away” from the home and let the mortgage lender foreclose on the house. Other homeowners decide to stay in their home knowing that the value of the home is less than the mortgage balance. It is this latter group that is of interest to economists and the housing industry.

A new survey conducted by the New York Fed Survey of Consumer Expectations examined the reasons given by people for remaining in their underwater homes and continuing paying the monthly mortgage payments. The key question in the survey was “Why didn’t you stop making payments (on your underwater home)?”

Approximately 11% of the respondents stated that they felt home prices would recover and their home’s value would once again exceed the amount owned on the mortgage. For those homeowners who actually did hold onto their underwater home in the past 8 – 10 years, time has rewarded them. In most parts of the country this is exactly what happened.

15.5% of the respondents felt that it would be morally wrong to stop payments and “walk away.” 19% of the respondents felt that stopping payments would negatively affect their credit scores, which is true. 25% of the respondents stated that the cost of moving to another home was too high.

The biggest reason why underwater homeowners decided to stay in their homes and continue making mortgage payments was simple – 77.6% said they liked their home and did not want to lose it.

*Note that the survey percentages exceed 100% because some respondents gave more than one reason for their decision to stay in their underwater homes.

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