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Wednesday, November 25, 2009

One in Four Borrowers Are Underwater

As reported in a Realtor News article from their Source: The Wall Street Journal, Ruth Simon and James R. Hagerty (11/24/2009), more than 23 percent of people with mortgages owe more on their properties than they are worth, according to a report released Tuesday by research firm First American CoreLogic.

Another 2.3 million homeowners are within 5 percent of being underwater, bringing the total of those who are upside down or close to it to about 28 percent.

About 5.3 million U.S. households have mortgages that are at least 20 percent higher than their home's value, the First American report says. Borrowers owing more than 120 percent of their home's value are the most likely to default, First American calculates.

The majority of underwater mortgages are in the following states:

Nevada: 65 percent of homeowners are underwater
Arizona: 48 percent
Florida: 45 percent
Michigan: 37 percent
California: 35 percent

The report also notes that most U.S. homeowners have home equity, and nearly 24 million owner-occupied homes don't have any mortgage at all, according to the U.S. Census Bureau.

I can certainly add my own anecdotal take on these numbers. I do 2-3 CMA’s a week for clients who request market analyses on their homes thru a Web-based service that subscribe to. Over the last 12-18 months almost every request that I received resulted in current market price numbers that are lower than what the public records show is owed on the property. Most of these underwater homeowners bought within the last 5 years, but many are long term owners who took out home equity lines of credit for whatever reason and now find themselves upside down on the debt vs. value of their homes.

It is tough and sometimes sad to have to tell owners that they can’t get out of their homes to move for a job or retirement because it’s now worth so much less than when they bought. For many the value of their home was a big part of their retirement nest egg, an egg now gone bad. For some the home they loved is now a ball and chain preventing them from making that move South for retirement or maybe closer to family. For others it is the thing holding them back from seeking work elsewhere, where jobs may be more plentiful than in Michigan. For many sellers these last 2-3 years that has meant bringing money to the table to sell their homes, so that they could move on. For some that has meant just walking away and losing everything that they had worked so hard to get. It’s not a pretty picture.

One might think that the Federal programs, like the Making Homes Affordable program, would help; however, the lenders have not jumped on board that program and would seem to prefer foreclosure to doing loan modifications and workouts with strapped owners. So. While Wall Street and the big banks give themselves obscene bonuses, Main Street America continues to see hopes and dreams go down the foreclosure drain. It’s got to stop somewhere, sometime and it may take a severe backlash and uprising of the borrowers to spur the changes that are needed.

I’m not necessarily a fan of bigger government, but the big players on Wall Street have proven over and over that they cannot police themselves and that greed always wins over common sense. The pendulum needs to swing back from the almost totally unregulated markets of the Bush years to something that allows for innovation and entrepreneurship without encouraging excess. I’m not sure that either of the political parties that we are stuck with have the intelligence or political will to find that middle ground. We shall see.

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