PrintApril 4, 2011
Are Obama's Mortgages Underwater?
Should the Obamas walk away from their million dollar mansion? Should they short sell?
With the recent decline in housing prices, the Obamas' Chicago mansion could be worth less than the value of their mortgages.
In mid 2005, the Obamas purchased their dream home for $1,650,000 in Chicago's Kenwood area. Since then, real estate prices have dropped considerably and their mortgages may be underwater like millions of other Americans who bought real estate before the housing bubble burst.
The Obamas financed their home by borrowing $1,320,000 from Northern Trust Company. The loan balance on that mortgage would have declined to about $1,205,000 given the terms of their loan (fixed interest rate of 5.625% and a term of 30 years, assuming regular loan payments and no prepayments).
In January of 2006, the Obamas also purchased a strip of land adjoining their lot from now convicted felon Tony Rezko and his wife, Rita, for $104,166.
To pay for this strip of land, the Obama's probably used some of the proceeds available from a $250,000 line of credit obtained also from the Northern Trust Company in December, 2005. The line of credit is secured by their mansion as well.
If the first couple borrowed only the purchase price of the strip of land and are not paying off the line of credit, then the Obamas would owe a total of $1,310,000 for both mortgages in round figures.
(Note: the Obamas are no strangers to their lenders. As we reported previously in AT, the Obama's were deeply in debt until the year 2005 when Obama was elected to the Senate, his book sales took off and Michelle suddenly received a substantial pay raise from the University of Chicago. The Obama's had financed their lifestyle by borrowing frequently against their homes.)
Nationwide, home values have declined again and Chicago home values have dropped as well. Trulia.com states that the Kenwood area has suffered especially sharp drops in prices. The median sales price decreased 42.2% in the past five years alone.
This means that Obama's mansion and the Rezko lot may now be worth as little as $1,014,000, yet they owe perhaps $1,310,000. Another source, Zillow.com, places a somewhat higher value of $1,322,500 for the mansion and an unknown value for the Rezko lot. Assuming a proportionate price drop for the lot, the total value is about $1,406,000. Taking an average of the Trulia and Zillow estimates, we would get about $1,210,000 which places the mortgages about $100,000 underwater.
It is likely that the Obamas are current on their mortgage payments so there is no need for the Obamas to take advantage of loan modifications under his administration's failed Home Affordable Modification Program (which the House Republicans just voted to kill). HAMP was a critical part of the Troubled Assets Relief Program (TARP) which Obama promised would keep people in their homes, but it failed miserably. Neil Barofsky, the former inspector general for TARP, wrote a scathing opinion piece in the New York Times where he states:
It is likely that the Obamas are current on their mortgage payments so there is no need for the Obamas to take advantage of loan modifications under his administration's failed Home Affordable Modification Program (which the House Republicans just voted to kill). HAMP was a critical part of the Troubled Assets Relief Program (TARP) which Obama promised would keep people in their homes, but it failed miserably. Neil Barofsky, the former inspector general for TARP, wrote a scathing opinion piece in the New York Times where he states:
That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000). This is the well-chronicled result of the rush to get the program started, major program design flaws like the failure to remedy mortgage servicers' favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines. As the program flounders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the program's lifetime.
Obviously, throwing federal cash at the housing crisis did not solve the problem.
The Obamas themselves have plenty of cash from book sales so they could afford to keep paying the monthly payments of $7,600 on the first mortgage along with unknown amounts on the line of credit.
Since the Obama's hardly ever stay at their Chicago mansion, but instead prefer to jet off at taxpayers' expense to Hawaii, Brazil, Spain (Michelle and the kids), and other swanky places, it might make sense to get rid of the place. They could consider a short sale and leave the bank with a loss or they could just abandon the place and let the bank deal with it.
With declining approval ratings, the Obamas likely will need a place to stay in January 2013 when the lease on their temporary living quarters at 1600 Pennsylvania Avenue expires. They may choose to keep the Chicago mansion for sentimental reasons, or they might take the Clinton option and move to New York or some other locale with major media presence, trendy restaurants and haute couture dress salons.
Whatever they choose for themselves, President Obama's profligate spending has left an enormous mortgage against the good faith and credit of the United States that will hobble our republic for decades to come. The 2012 election presents an opportunity for us to elect a resolute Congress along with a conservative President to clean up the mess.
