Brace Yourself for Another Wave of Underwater Borrowers

Townhall ^ | 06/03/2014 | Mike Shedlock

[SeekAndFind]

Black Knight's April Mortgage Monitor shows almost 2 million modifications face interest rate resets, and 40 percent of those resets are underwater.

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"We have seen a continual reduction in the number of underwater borrowers at the national level for some time now, but modified loans show a different picture," said Kostya Gradushy, Black Knight's manager of Loan Data and Customer Analytics. "While the national negative equity rate as of April stands at 9.4 percent of active mortgages, the share of underwater modified loans facing interest rate resets is much higher -- over 40 percent. In addition, another 18 percent of modified borrowers have 9 percent equity or less in their homes. Given that the data has shown quite clearly that equity -- or the lack thereof -- is one of the primary drivers of mortgage defaults, these resets may indeed pose an increased risk in the years ahead.

"From a broader perspective, it's also important to note that more than one of every 10 borrowers is in a 'near negative equity' position, meaning the borrower has less than 10 percent equity in his or her home. This is particularly pronounced in New Mexico and Southern states. At a local level -- and we look at both mortgage performance and Home Price Index (HPI) data down to ZIP code granularity -- such slim margins in equity can have a significant effect on overall negative equity levels with even slight variations in HPI. So, while the overall situation for underwater borrowers has improved significantly, there are still areas in the country where borrowers are hovering at the edges."

Mortgage Monitor Charts

April 2014 Summary Data



Total Delinquencies


click on any chart for sharper image

New Originations



Loans Facing Reset



Percentage Underwater



Underwater loans facing reset is one major problem. A second problem is the declining volume of new originations and home sales. A chart of new single-family homes sold will highlight the second problem.

New Single-Family Home Sales



Housing is weakening in a number of ways.

[txrefugee]

What??? That can’t be true. CNBC has Obama cheerleaders on every morning singing, “Happy days are here again” about the housing market.

By the way, wanna see a real crash on Wall St.? Just wait till the morning after the Nov. election if the Republicans don’t regain the Senate. The markets are depending on a GOP victory. They certainly aren’t pinning their hopes on this lousy president’s ability to help the economy at this late date.

[morphing libertarian]

My wife and I are RE brokers. We get a couple of e-mails a week from lenders advertising there new easier to get loans. The trend is to looser/easier qualifying.

Happy days are here again.

[Lorianne]

This term bugs the hell out of me.

Nearly everyone lost value (bubble value) in their homes in the housing boom-bust. But the people with the most equity in their homes lost REAL MONEY PAID, whereas people who had little to no equity lost nothing ... they lost future money that they haven’t paid yet (and could get out of paying if they sold or declared bankruptcy).

What’s more, a great number of ‘underwater’ mortgage holders took money out of their houses based on bubble values. Therefore they got REAL MONEY TO SPEND on other things but now want that same money back if they were ‘made whole’ by some government programs ... so they’d get to spend the same money twice!

Meanwhile poor shlubs who didn’t take equity out of their homes and either had them all or mostly paid off lost REAL MONEY ... yet no government programs are proposed to “make them whole” (not that there should be mind you, but if anyone should be “made whole” it should be people who lost REAL MONEY ACTUALLY PAID)

These programs to help ‘underwater’ mortgage holders are really only offered to help the lenders, not the borrowers. And to try to keep the housing bubble inflated or re-inflate it.

[nascarnation]

OK, great post.
But how do I become the next John Paulson?

[sheana]

I tried to explain that to a friend who has a liberal streak running through her. Of course she is one of the ones way inderwater for those same reasons. She looked at me blankly and then told me more or less that I’m mean.

[bicyclerepair]

The house nextdoor has been abandoned since 1/6/2014.

They can’t sell it for near purchase price. So they walked.

[sheana]

My friend could have sold hers for purchase price now. Houses have come up here again. She borrowed so much money against it that now she can’t sell it for what she owes. Her son recently lost his job so I expect them to walk. This will be the 2nd time. The house was almost foreclosed on before but she got some kind of refi to lower the payments.