The thought of being upside down on an automobile is not new. This event usually occurs when a buyer make the choice to buy a new auto before they have paid off their old one. As a result, the remainder of the loan on their current auto is added to the new note for the new car. The result is that the auto owner now owes more on the new auto than it is really worth.

Today, many home owners are finding they are now upside down on their home mortgages. Unfortunately, this didn't occur because they found and bought a new house and appended in the cost of their old house to the new mortgage note. This situation occurred because of the rapid increase in home prices in many areas followed by the recent housing market crash that sent house values spiraling downward.

In many markets, especially in California, the majority of homeowners are now actually upside down on their mortgages and that number is increasing rapidly. A large number of these homeowners are consumers who purchased their homes at the peak of the boom. During that time home values doubled and even tripled within a short period of time in many areas. This situation leaves many homeowners wondering what they should do. Options are often based on whether or not the homeowner is able to continue making their monthly mortgage payments. While some are able to pay their monthly mortgages, especially if they have a fixed rate mortgage, that is not the case with others who took out adjustable rate mortgages.

Homeowners who can still afford their monthly mortgage payments and who are not feeling the pressure to sell due to employment reasons may find they are better off by riding out the market decline. There is a wide belief that once the market bottoms out it will begin to rebound. If that occurs, these homeowners could still be poised to make a profit on their home once the market does rebound.

Other homeowners are not so fortunate; however. In some cases, homeowners simply have no choice but to move now rather than wait as a result of relocation or job loss. Homeowners who have adjustable mortgages may also find they are simply no longer able to afford their mortgage payments as they continue to rise. These homeowners are now facing the bitter reality of house foreclosures when they are not able to pay off their debts or refinance their home loans because of tightening loan restrictions.

Homeowners also see their options limited because they have little or no equity in their homes. The amount of equity a homeowner has in their house is often determined by the amount of their initial down payment. During the heady days of the housing boom it was quite usual for consumers to purchase houses with very small, if any at all, down payment. At the time it seemed like a great deal, today it is causing increasing problems as home values continue to slip.

This situation is causing more problems for homeowners who need to take out home equity loans to make needed home improvements or to consolidate higher interest debts. Even they are are amoung the handful of homeowners who have equity in their house, they are seeing lenders increasingly wary of handing out home equity loans. Just as the default rate on primary home mortgage loans are on the rise, so has the default rate on home equity loans. Quite simply, banks and lenders are no longer willing to face an increased risk when they are already holding an increasing number of defaulted loans.

The ability to refinance homes has also dwindled in many locations. Not only are loan guidelines becoming stricter but most homeowners who are upside down are frequently finding the lower value of their home makes it nearly impossible to qualify for a new loan. In essence these homeowners now have negative equity and lenders are simply not willing to take on additional bank foreclosures.