Underwater on Your Mortgage? You Have Options

Falling behind on one's mortgage is a stressful and potentially financially debilitating event. Such a situation is made worse if one's home is now worth less than what one owes on the property. Being underwater on a home takes the option to refinance off the table, since banks take on all the risk in such a situation. What is a homeowner to do?

Fortunately, there are a couple of options for underwater homeowners. The first is attempting to secure a loan modification. A loan modification would change the original terms of the mortgage to adjust the monthly payment, making them better manageable given the financial situation of the homeowner. Mortgage brokers are not required to make modifications, so it is possible to be rejected for a loan modification if the bank believes the risks are too great.

If loan modification is not an option, homeowners may wish to consider filing for bankruptcy. Though mortgage loans are not modified under either Chapter 13 or Chapter 7 bankruptcy, consolidating other loans, like credit card debt or personal debt, can make one's monthly burden easier to manage. Under Chapter 13 bankruptcy laws, loan payments cannot be rejected, so as long as a bankrupt keeps making payments on a mortgage, he or she cannot lose his or her home.

Almost no other region of the country has had to carry the burden of the reality of underwater mortgages than south Florida. Almost fifty percent of homeowners in Palm Beach, Broward and Miami-Dade counties are making payments on a mortgage with a balance that is more than their homes are worth. This is up about 3 percent from 2010. Zillow.com, a home buying and mortgage shopping website that keeps data on home prices, claims that south Florida has not yet reached the home price bottom, and predicts that the region will not see the bottom of home prices until 2012 at the earliest.

Though being underwater on a mortgage seems like an inescapable situation, there are options available to homeowners that can ease mortgage woes, including loan modification and Chapter 13 bankruptcy. It is wise for homeowners to exhaust all available options before succumbing to foreclosure.