Posted on 02/10/2010 8:40:56 PM PST by Nachum
NEW YORK - One of every five U.S. homeowners owed more on their mortgage than their home was worth in the fourth quarter, a trend that poses a serious threat to the U.S. housing market's recovery, real estate Web site Zillow.com said on Wednesday.
Homeowners with "underwater'' mortgages are more prone to defaults and foreclosures. They typically do not qualify for refinancings and are unable to sell their homes because they would need to cough up cash at closing time to pay off their mortgage.
(Excerpt) Read more at msnbc.msn.com ...
If you bought near the top in 2005/6 with 25% down and you have seen a 55% drop in valuations as is the case in Florida you will make payments for 16 more years before you get back to owing what the property can sell for (19 years from origination) ,, or 18 years to make up for the expense of a realtor.
You can pack your bags and rent for half or less in a better house in the same neighborhood in many cases (”musical chairs” anyone?). You are eventually going to fail on the original mortgage anyway if you have to move for a job or some other reason and can’t make a short sale work..
Why cant they sell? A short sale should work.
But slowly, over time many of these folks will need to sell. Death, bankruptcy, divorce..all will cause a forced sale. These forced sales will continue to keep prices down..for a long time.
But over time these home values will recover too. This is a short-term problem.
Depends on what you mean by ‘short term’.
Housing is still 50 percent overpriced. Assuming 3 percent appreciation, the decline hasn’t quite brought prices down to their historical rates.
You are right that in the long run, in 10 years or so, that the prices will increase, but that is a long time to watch your equity vanish.
Personally, I’d buy the house and rent it out even if rent failed to cover the entire mortgage. Yes, it’s
It’s a tough decision for these young couples I know. They have actually been advised by the banks, that they won’t even talk to them about renegotiating a loan, etc. unless they have missed 6 months of payments.
Sounds like a catch 22. Miss the payments, and they might foreclose; don’t miss the payments and you can’t renegotiate w/the bank.
One of the problems of being upside down has been reported that a bank can ask for more cash to cover the losses. In other words, the house is the collateral backing the loan, but if that collateral becomes worth lesss than the loan amount, the bank can ask for more collateral or cash.
Why cant they sell? A short sale should work.
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Short sales don’t work for 3 major reasons ...
1.) the bank makes more ... MUCH MORE if you default with their insurance in the form of credit default swaps.
2.) the servicer is often the only contact for the borrower , the servicer is very often unable to determine the owner of the note ,, it is a REAL PROBLEM , not just a cute legal question ,,, only the owner of the debt can OK a short sale .. if you can’t find them you have nothing.
3.) assuming you have a loan with a local bank and have a face to face and get a short sale approved it often takes a lot of time and by then the short price is still too high for a sale to occur.
Basically you’re banging your head against the wall ... if you’re in a non-recourse state give them the house back or stop paying and fight them for it.
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