Underwater

Greece recently managed to pull off the biggest debt writedown in history, also known as a debt swap, where private investors who held government bonds agreed to exchange those bonds for a fraction of what they paid for them. They could have refused the deal, which would have almost guaranteed them defaulted, worthless bonds. They could have also received for their worthless bonds the psychological burden of nudging their fellow Euro nations into a nasty tailspin. I would have taken the deal too.

I can’t convince my bank that if I default on my mortgage or credit card Portland will tailspin back to a barter economy. In reality, our default would just render us homeless with wrecked credit, not exactly a strong bargaining position.

Which brings me to the topic of the day: what should you do if you owe more than your house is worth? Presume you can still make your payments and are in no danger of foreclosure, simply play it long. Your house is one portion of your total portfolio, think of it as your own private REIT.  Money, though as real as the groceries you exchange it for, is also an intangible abstract that hinges on what comes down to a mind game. The irrational markets swing over real things, the possibility of Greece defaulting, and not so real things, like how the wardrobe choice of the Federal Reserve Chairman is an indication of his bearishness. Your house being underwater can twist your mind into an irrational decision. But, if you think of your house as a stock that you bought high and is now low, don’t sell low, wait until it rises up. The current market price does not necessarily reflect the true value. It is an undervalued stock, hang on.

There are, however, a few things you can do if you are experiencing more month than money. If at all possible, refinance, rates have never been lower. If that isn’t an option, think smaller. You have already cut expenses, but you can probably cut them more (check out your grocery budget, there is always a bit of room there if you take out a pizza or two). You can also get a roommate, which may feel like you are backsliding to college days, but spread the word and you can find a good fit with someone who is also saving money, perhaps to buy a house in this fantastic buyer’s market. No room? Have the kids double up for a few months while you host an exchange student. The stipends can be generous plus you get an abundance of goodwill brought by having a young person from another country in your home.  If you don’t want to use your house as an income supplement, you can rent out your car.

Don’t lose the forest for the tree, even if your house is the biggest tree in your yard. It is only part of your financial package and hey, you gotta live somewhere.