"underwater" mortgages

[classicman]

Some/many of the underwater mortgages are because they were ARM's where the payments were lower in the beginning and then increased as time went on. This is how those who really couldn't afford a home with a conventional mortgage became homeowners.

As the value of the home increased many of them bought up into another home they couldn't afford with a conventional mortgage or they refinanced into/with, yet another ARM keeping their payments artificially low and marginally affordable.

Once the values of the home stopped increasing and started to decrease, the amount owed became larger than the value of the home and the payments increased as is the way an ARM is designed. Hence unmanageable payments on a home that is worth less than the amount borrowed.

Stupidity/ignorance and/or predatory lending - take your pick. Either way, those who were not stupid/ignorant and/or bought into the predatory lending are going to pay. Whether they go under or the mortgage is refinanced.