Posted on 03/04/2009 11:11:57 AM PST by IrishMike
Negative equity problems worsen as mortgage applications continue to fall. Homeowners in the United States still have a long way to go to dig themselves out of the mortgage crisis.
According to a study by First American CoreLogic released Wednesday, one in five homeowners with mortgages owe more to their lenders than their homes are worth. Compounding the problem, is that that rate will increase as housing prices drop in states that have so far avoided the worst of the crisis.
About 8.31 million properties had negative equity at the end of the year, up 9.0% from 7.63 million at the end of September. The percentage of these underwater borrowers rose to 20.0% from 18.0% over that time.
The study covered 43 U.S. states and the District of Columbia.
States such as California, Florida and Nevada were particularly stressed. Along with Arizona, Georgia, Michigan, and Ohio they accounted for 62.0% of underwater borrowers but just 41.0% of mortgages.
Other areas, however, are deteriorating. Connecticut, for example, saw a 25.0% increase in homes with negative equity, while the District of Columbia had a 44.0% rise.
(Excerpt) Read more at forbes.com ...
As long as people are current with their mortgages the “underwater” factor is of limited impact. Banks are not going to foreclose a mortgage because it is less than the home value unless the lendee is in default. Why stop a source of income from a reliable payer? At some point the housing market will rise and values increase. The only real effect is on those seeking to refinance of get a second and those who need to sell now.
I feel for those that put down the 20% and were just unlucky.
But I have no sympathy for those that did the no money down, 125% mortages. Those were already “underwater” the day of their closing. Duh.
Or thoses that wined and dined, vacationed and lived it up on equity for the past 10 years.
They should get NOTHING.
All true, it’s the unemployed and those who purchased at 2006 peak prices with adjustable or teaser rates, or those who took out home equity loans to by cars / vacations or ‘investment’ properties who are in a jam !
No sympathy at all from me.
You are, of course, right - when these people have a loan with terms that won’t be re-visited.
Sadly, for many who have ARM’s, or (worst of all possible worlds) option-ARMs, the bank can re-visit the terms of the loan at specified intervals along the life of the note.
People signed onto these terms without understanding that, yes, real estate markets can go DOWN as well as up. There was a huge, unfounded assumption (there’s that word - ass, u, me, etc) that as long as home equity kept increasing due to price appreciation, you could simply roll the loan over before the ARM reset.
Welllllll those days are over. The ARMs are resetting and there is lots of fine-pitch print in there that allows banks to require borrowers to put up more money as the loan-to-value ratios go upside down.
One impact that all these underwater mortages have is in limiting individual mobility which in turn limits how efficiently the economy can reorganize itself. With underwater mortgages, some people won’t be able to move to a new and better job that more efficiently utilizes their skills. Other who have been laid off, may have to look for a new job in the same area, rather than move to an area with better opportunities.
We are all acting like we have a ‘right’ to own a home, and a ‘right’ for cheap mortgages. This amazes me.
With the administration’s program announced today....lowering folk’s mortgage payment....this ‘right’ even amazes me. Basically...if you had a 30-year mortgage...then we just upped it to 37 years...which means you could still be paying at age 70, which will be awful hard for alot of guys.
I think we are at a point where we are admitting that we have a right to be ‘stupid’....and the administration agrees.
This episode, BTW, should be used by all of us who understand the mechanics of these things to BEAT it into the young people of today that when you take out a loan, get a FIXED RATE, FIXED TERM loan.
Markets go down when you can least afford a bank to re-negotiate the terms of the loan. That should be drummed into every kid’s head: when the crap hits the fan (and recessions are normal - the debt deflation we have today is NOT), that’s when you don’t want your banker on your doorstep. You want to be able to keep paying the loan and not head another thing from the banker.
An example I have from ranchers is that inexperienced ranchers starting out would take out an operating loan on the cattle. As long as the cattle market is stable, the banker leaves you alone.
As soon as the cattle market goes down, the banker wants you to sell - and when the cattle market goes down, that’s the time you should be BUYING - culling out your weak cows, getting better genetics in your herd, etc - at low, cyclical prices.
The advice from older ranchers is “Never let the banker hold a note on your cattle. On your equipment, land and house, OK — cattle? Never. Bankers ALWAYS want to sell at the wrong time in the 10-year cattle cycle.”
I hate to say it, but so what?
Unless you are planning on selling your house soon, what is really the problem? If you can’t make your payments, that’s a problem (because you can’t sell your house to get out from under your debt), but if you can make your payments the current “street value” of your house is meaningless.
So you’re paying too much for your house. Big deal. Housing prices will go up eventually. Even an overpriced house will be a good value IN THE LONG RUN, if you stay in the house long enough.
On the bright side of this crisis, maybe people will FINALLY stop looking at their homes as investments. They arn’t. They aren’t. Add in the interest you pay on a 30 year mortgage and you realize a house is a poor investment.
Investments accrue interest. You don’t pay interest on an investment.
As an optimist, I look at this as 80% of the homes are not underwater.
....I guess you could say I’m underwater myself because our house/land is worth less than we paid in 2005....anybody who bought in that time frame has taken equity loss....even though we paid cash we know we can’t sell now, so we’re resigned to staying put for a while til this blows over...some of our retired neighbors feel the same....this means folks who would have sold out to go to a retirement community won’t be doing that now...my sense is there is a tremendous amount of pent up real estate out there....and it’s not all debtors either.
one word....GO TO HELL!
“One impact that all these underwater mortgages have is in limiting individual mobility which in turn limits how efficiently the economy can reorganize itself. With underwater mortgages, some people won’t be able to move to a new and better job that more efficiently utilizes their skills. Other who have been laid off, may have to look for a new job in the same area, rather than move to an area with better opportunities.”
There have got to be some great business opportunities here:
*House swapping or mortgage swapping. A service could be offered that would match underwater homeowners in different states, who need to relocate, where they could “rent” each other’s homes.
Alternatively, perhaps banks could arrange for mortgage swaps between underwater homeowners who want to move. Example: Bob in Michigan and Dave in Arizona, both have mortgages of about $300K on homes worth about $225K. The two banks agree to trade Bob’s loan for Dave’s, with either one of the lenders or homeowners kicking in some cash for the difference in equity.
*Residential rental property management, for folks who are forced to become out of state, absentee landlords.
*Do it yourself Arson kits and instructional DVD’s on “How to Torch Your Underwater Home: Without Getting Caught”. :)
I think we are at a point where we are admitting that we have a right to be ‘stupid’....and the administration agrees.
Funny, if it weren't so true.
Whether I feel sorry for them or not--they don't deserve my tax dollars going to bail them out.
The Fed’s Beige Book today said that Manhattan condo prices are down 25% from just last summer—the first drop in the last 16 years. This housing crisis is just in the 6th inning. We will have a false bottom in Q3 2009, a leveling off, and then a true bottom sometime in Q4 2010-Q1 2011. Those who buy then will be handsomely rewarded—this is, if private ownership of anything is still permitted.
And a right to own a $5,000.00 big screen TV set, to be paid for with the equity of your $800,000, $500,000, $150,000 home.
Having a home that is worth less than you owe is of very little importance if you like your home, you can afford the payment, and do not need to sell. My home has been worth less than I owe several times as the years have gone by and Congress tinkered with real estate (the 1986 tax reform act comes to mind—big drop in home values around 1988-89 directly related to that lovely piece of legislation).
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