How bad is the residential mortgage picture?
By: Myles, February 24th, 2010
In a word, the residential mortgage picture is: BAD.
As reported by MarketWatch, more than 11.3 million homeowners — nearly one-fourth of all Americans with a mortgage — owe more on their loan (or are “under water”), than their home is now worth, according to a report released February 23, 2010, by FirstAmerican CoreLogic.
-
More than 10% of people with mortgages owe 25% more than their home is worth.
-
The number of underwater mortgages increased by about 620,000 from the third quarter 2009.
-
Another 2.3 million mortgages had less than 5% equity in their home, which could be wiped out if home prices fall further.
The question is, why does any of this matter? Simply put, once the mortgage is underwater, owners cannot easily sell their home or refinance their loan.
Negative equity exceeded 25% in six states and topped 20% in six others. Underwater mortgages are concentrated in few states:
-
California (1/3+ underwater)
-
Nevada (70% underwater)
-
Arizona,
-
Michigan and
-
Georgia.
And not only can’t the owner typically sell or refinance their home, but the rise in negative equity is closely tied to increases in pre-foreclosure activity, CoreLogic said. So once a homeowner owes 25% more than the house is worth, foreclosure rates rise sharply. A rise in foreclosure rates, not only significantly impacts the owner and their family in irreparable ways, but it too hurts the banks who hold the mortgage, as well as negatively impacting the market with lowered home values and increased inventory.
Further adding to the problem of dropping values, in the fourth quarter 2009, national home prices fell 1.1% compared with the third quarter 2009, Standard & Poor’s reported in a separate report on Tuesday. See full story on Case-Shiller home price index.
Tags: Defaults, Residential Mortgages, Underwater
Entries