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Of course they are underwater, this is not surprising, stop making it out to be more than it is. It is not all that critical as long as they don't have to sell or refinance. Since most people bought with little or no money down at the height of the market there was no cushion of equity in their purchase. The more telling statistic would be how many of these homeowners are not making their mortgage payments, are behind in their mortgage payments, or in some stage of foreclosure or pre-foreclosure.
Personally, the full blame for this mess lies with the lenders and the buyers, and maybe a small number of bad real estate agents/Realtors. Look, the bottome line is that at the height of the market you had ready, willing and able buyers who were qualified by reputable lenders, Countrywide, Bank of America, Wells Fargo, etc. The real estate agents helped them buy the house they wanted and their lender said they could afford. In that situation it is not my role to convince a buyer not to buy their dream house or to buy something less because I don't believe they can afford it. I leave the loan terms as a subject between the lender and the buyer and only get involved if the buyer indicates a need for help. While you are right the house buying process has been commoditized like everything else in America. A home is not a stock, a bond, a car, a shirt, an investment commodity. A house is an illiquid asset, if you can't afford it, don't like it, you can't just trade it in, throw it away or ignore it. You are right we do need to get back to basic, common sense money management and financing methods. Where is it written that everyone is entitled to own a home? Owning a home is something you should have to work hard to attain and are not entitled to. Downpayments must be re-instituted, even as little as 5% would be a help but 10% would be better except for FHA and VA. All this and good credit scores must be a pre-requisite if we are to keep this from happening again.
Michael is a bit cruel in his last comments to YOU about sticking to the law and letting brokers and agents give the advice. I believe you indicated in your response that you ARE an agent as well as an attorney. Mike, chill out. Sounds like her broker is a bit shady. Anyway, I also disagree with your suggestion to refi. This will only work when there is positive equity. The homeowner did indicate she was upside-down in her mortgage. Her best bet is to try to work with her lender to modify her loan in some way. The lenders do NOT want her home, they want the money. Most are taking the position that most of the money is better than none at all. It will take quite a while to work through with the lender but she did say she has 5 months before her rate resets. So she should get on the phone with the loan servicer NOW, she has time on her side right now. More than likely she will be able to work something out to allow her to keep her home. However, if the broker she used lied about her income or debts in order to qualify her, and he sounds like he is the type to do that, she may find herself in a short sale or worse, a foreclosure situation. Your advice was mostly correct as most homeowners are too afraid or ashamed to call their lender (not the broker) to ask for help. CALL THE LENDER OR YOUR LOAN SERVICER AS SOON AS YOU KNOW YOU HAVE A PROBLEM!