Four inches above the front-page fold, today’s New York Times reports that 10.3 percent of American homeowners now owe more on their home mortgages than their houses are worth. That would be 8.8 million citizens, folks, twice as many underwater homeowners as we had a year ago. “Not since the Depression has a larger share of Americans owed more on their homes than they are worth,” says the Times.

You wanted personal finance and stress in this blog? Well, you got it: be afraid, be very afraid.

Over it yet? Get a grip, and let’s take a closer look at this story.

Presented to us as a typical case in point is Stuart B. Breakstone, a middle-aged lawyer who, with his wife, a Memphis airport customs manager, cranks something over $250,000 a year. At the sale of Mr. Breakstone’s custom home, the couple was forced to pony up a check for $65,000 to cover the amount still owing on the mortgage after the house was sold at its deflated price. This beleaguered pair now owes $670,000 on the house they just purchased. Why?

Because when they married, their merged family included three, count’em, three kids, the alleged grown-ups felt they needed more space. Evidently people in this social class have never heard of an invention called the “bunk bed.”

Moving on to another typical victim of the real estate crisis, we meet 60ish Collie Tuttle, trapped in a four-bedroom, three-bathroom Memphis palace for which she borrowed $270,000 with nothing down four years ago. She was earning six figures at the time, and so this seemed affordable. Indeed, she paid the mortgage down to $248,000. Then she loses her job. Gets another one, but the pay is lower (no surprise there!), and so she’s strapped. A buyer offers $269,000, leaving her with a $6,000 loss after Realtor’s and closing costs. Though she can afford the $2,400 monthly (!!) mortgage and utility bills, “very little is left over to replace her 11-year-old car, to travel, to pay down her credit card debt, or even to buy new clothes.”

Poor thing won’t be visiting the Bahamas this year, and she may be forced to stay out of the Ralph Lauren store.

The third victimized couple, 40ish Jane and Kevin Naus, have been trying to unload their shack since last May. These two are more believably victimish, if you don’t think too hard about it. He takes a job in Greenville, N.C., leaving his wife behind in Miami to sell the family manse. They ask $239,000 and get no offers; they cut the price to $220,000, barely enough to cover their costs, and still fail to sell.

Meanwhile, Kevin loses his job in North Carolina. Jane, suffering from multiple sclerosis, joins him in Greenville, where she has family. Her disability payments do not cover the mortgage on the Memphis house plus the $700 rental in Greenville.

What’s wrong with these three pictures?

If the reporting is accurate (bearing in mind that little reporting is accurate these days, but let’s just accept what we’re told here: it is a national newspaper of record, after all), if the reporting is accurate, what is missing in each story is ordinary common sense.

Look. You’ve bought a house. Three or four years later, it’s worth less than you owe on it. How to deal with it? The choices are a) obvious and b) limited in number:

1. Sell and take a loss. Claim the loss on your income taxes. Raid your savings or borrow from friends, relatives, your credit union, or Prosper.com to make up the difference.

2. Stay put. Unless you are forced to sell because of a change in life circumstances (such as a job in a different city), hang on to the property until real estate values turn around, which they will do in about five to ten years, depending on the depth of the recession or (oh, WTF! let’s use the word!) depression we face.

3. If you absolutely have to move, rent the house for as much as you can get. If you can cover the mortgage with the rental income, bully for you. If you can’t, pay the difference out of pocket and deduct it from your income taxes. Meanwhile, rent, don’t buy your next domicile until such time as you can unload the upside-down house.

Please. How could you possibly have made it through three years of law school without the IQ required to figure this out? Your kiddies can’t share bedrooms for a while, until your circumstances improve? You can’t sacrifice your den or home office to convert it into a kid bedroom? You can’t see that adding on a couple of rooms to a $200,000 house would cost a lot less than buying a whole new $670,000 house?

Please. You’re over your head in credit-card debt on a six-figure income? On more than $100,000 with a modest $270,000 house, you can’t live within your means? How could you be capable enough to pull down six figures without having enough sense to figure out how to live on what you earn?

Please. How could you possibly decide to live in a $700/month rental while paying a $1,400/month mortgage on a vacant house when you have nothing other than a few relatives to keep you in the city to which you moved? When you are unemployed?

In the 8.8 million stories out there, at least some people must be believable victims. But these folks do not qualify. In fact, I’d be willing to bet that most of us do not qualify. Times are tough, they’re going to stay tough for the next few years, but we are not without resources. Here are a few strategies to cope:

1. • Get out from under as much debt as you can! Unload the highest-interest debt first, and as long as your income lasts, pay down principal until you can get yourself as close to debt-free as possible, given your circumstances.
   

1. • Do not move unless you are absolutely forced to do so. Consider the mortgage payment to be a large rental fee and suck it up.
   

1. • If you have to move to go to a new job, first try to sell the place. If no buyers materialize, rent it, even at a loss. Do not leave it vacant. Refrain from buying another house—rent!—until the first manse sells.
   

1. • Live within your means. That means after you’ve covered whatever losses you’re taking on the unsold shack. It means you may have to cut way, way back. It means the kids may have to double or triple up in the bedrooms. You may have to buy their clothes at WalMart and fix their meals in the kitchen. And yeah, you may have to vacation in the back yard this year.
   

None of today’s economic news looks especially good for the average Joe or Jane in America. But I believe that if we stay put, refrain from spending more than we earn, and use ordinary common sense, over the next few years most of us will come out of this all right.

debt, personal finance, real estate