Nearly 10 million homes upside down
First American releases state-level analysis
By Inman News, Friday, October 31, 2008.More than 7.5 million single-family homes are worth less than what's owed on their mortgages, and another 2.1 million were very close to being upside down at the end of September, according to an analysis by First American CoreLogic.
First American CoreLogic used automated valuation models to analyze its huge database of public records and produce what it claims is the industry's first state-level assessment of households with negative equity (click to download spreadsheet).
The analyses, of 42 million properties with mortgages, found the states with the highest percentage of upside-down mortgages were Nevada (48 percent), Michigan (39 percent), Florida (29 percent), Arizona (29 percent), California (27 percent), and Georgia (23 percent).
Those six states are home to about one in three U.S. mortgages, but account for more than 58 percent of the nation's upside-down homes, First American CoreLogic estimated.
Take those six states out of the equation, and the percentage of U.S. homes with a negative-equity mortgage is 12 percent, rather than 18 percent, the analysis found.
Some homeowners own their property outright and do not have a mortgage. But add the 2.1 million mortgages that are within 5 percent of being upside down, and 23 percent of single-family homes with mortgages are upside down or near upside down, First American CoreLogic estimates.
Being upside down -- owing more on a mortgage than a home would fetch in a sale -- does not necessarily mean a homeowner will end up in foreclosure.
But for homeowners who are having trouble making their mortgage payments because of a job loss or a rate reset on an adjustable-rate mortgage, being upside down can make it difficult or impossible to pay off a loan by selling a home or refinancing it.
Analysts at Fitch Ratings this week said 1.8 million subprime ARM loans totalling $347 billion are on average six months away from their initial or next monthly payment reset.
Fitch analysts said those borrowers face an increased risk of payment shock because of the recent volatility of a benchmark interest rate used to calculate their rates.
The six-month London Interbank Offered Rate, or LIBOR, spiked between mid-September and mid-October as loans between banks became more scarce.
Although six-month LIBOR is trending down from recent highs, at its recent peak it would have caused monthly payments for many subprime borrowers to increase by 30 to 50 percent, Fitch analysts said.
Another 1.4 million subprime loans totaling $245 billion are past their initial rate reset but are also affected by changes in LIBOR, Fitch said.
An increase in workouts and loan modifications by lenders could help ease the payment shock of rate resets, Fitch analysts said. The 98,000 loan modifications granted in September by HOPE NOW loan servicers represented a 22.5 percent increase from the previous month, Fitch noted.
If the loan workouts continue at the pace seen this year, then more than 1 million of the 1.8 million subprime borrowers facing resets could be granted relief over the next six months, Fitch said.
The Bush administration is reportedly weighing a proposal that the government guarantee as many as 3 million existing loans when lenders agree to restructure them based on a borrower's ability to repay (see story).
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Submitted by Robert A. Hulme on October 31, 2008 - 3:01pm.
I am real surprised not to see Utah on that list. I seems like half of the homes for sale here now are either Short Sales or Bank Owned Property. I guess I feel fortunate that we don't have the ups and downs like our neighbors, Arizona, Nevada and California. I am sure there are some tough times ahead for those trying to sell but great bargains for the buyers in our market.
Robert A.Hulme, Realtor
UtahCountyRealEstate.us
Submitted by Matt Carter on October 31, 2008 - 4:58pm.
If you download the spreadsheet mentioned above, Robert, you'll see First American CoreLogic estimates that 10.7 percent of mortgages in Utah are underwater. Throw in the "near negative" mortgages (those within 5 percent of being upside down) and you're still only at a combined 14.5 percent -- not too bad in comparison to the combined 23 percent nationwide.
Compare that to the percentage of negative plus near-negative mortgages your neighbors have -- Nevada (52.8 percent), Arizona (35 percent) and California (31.8 percent) -- and I guess you have some reason to feel fortunate.
Let's not even talk about the negative plus near-negative mortgages rates in Michigan (46.5 percent) and Florida (33.9 percent).
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on November 1, 2008 - 7:06pm.
Thankfully, not only is LIBOR edging downward, but also, oil and gasoline.
In addition, we see that unemployment remained somewhat tamed, credit markets are begining to show signs of thawing, Mergers and Acquisitions are back, existing and new home sales are up a bit (because prices continue to drop, people are finally finding that ideal price for that ideal home).
In short, our next president will probably tell the American people during the next state-of-the-union address how their policies got us out of the turmoil we were in, when all along, it was the policies initiated in 2008 (some even in concert with other countries), that really got it all headed in a direction that favored everyone (including them in Washington).
The question that will remain for some time is: what to do with the politicians and executives that controled and allowed the (world) economy to get this bad, and how do we make sure we don't see a 3rd Great Depression in another 70 years?
The individuals who made bad judgement calls, are but a spec (though in massess, it has become a massive problem), of the overall problem.
Whereas the politicians and executives who held positions that allowed them to see a wider spectrum of the consequences of their
(in)actions should be held accountable and to higher standards by virtue of the positions of trust they (still) hold, than those who ultimately knew only to accept the easy money offers they were almost insisted they take.
www.MiamiRealEstateKing.com
Certified Distressed Property Expert
Miami-Dade County, Florida.
Submitted by John J Ward on November 2, 2008 - 2:35am.
Where is this all leading to ?
* Still only a relatively small amount of potential house buyers can meet the criteria to obtain a mortgage.
* A significant number of owners cannot sell, with the negative equity in their property how will they settle with lenders?
* Despite the baleouts how will Banks survive if they cannot lend money in sufficient quantities to generate returns sufficient to cover their overheads ?
It seems to me that the governments of the USA, UK and others have bought time which will come to an end within 18 months. The problem will be back with little money for another baleout.
New controls, new criteria, more accountability, whilst desirable, seem to be shutting the door when the horse has bolted.
What we need is a complete new approach to house buying with a rescue package that keeps people in accomodation.
Why don't governments / lenders and others involved freeze individual debts as long as the occupants pay an affordable /fair rent. This would stop repossesions and allow the Lenders some income and keep the situation stable. The rental sector will grow whilst people get rid of debt over several years.
The real estate market has we knew it has gone forever but matters could get significantly worse without early radical reform.
Retirement Village Developer in UK and USA.
Submitted by Michael Espiritu on November 3, 2008 - 4:52pm.
I don't feel so bad now... 7.49 million others are in negative-equity territory. Why doesn't the government adjust all mortgages taken from 2006- Dec. 31, 2007 at 90% appraised market value and re-do the mortgages w/ government backed insurance if the borrower defaults?
Here in the San Bernardino- Riverside County area we have seen home values drop by 31% from September 2007 and prices are continuing to plummet. Great news for those buying and those with capital but not good for those who are upside-down but current on their mortgage.
The Riverside County Assessor has reduced assessed value on all properties but the figure is still not accurate. A current value is needed. No property tax money coming in and vital city services can be impacted.
Keep homeowners in their homes. If nothing is done we will start to see homeowners making a business decision to leave their homes, take the credit hit, and start over! It is going to take a very long time ( if ever) to erase $100,000 - $300,000 of negative equity that many homeowners are facing in So Cal.
Wenceslao Fernandez'z observation that Mergers and Acquistions are back is correct only in the banking sector. The credit restrictions on M & A's are hurting that sector big time!
As far as his comments about gasoline prices going down- Its funny that the price has "magically " fallen- it is close to the election and my prediction is that on November 5th gas prices will spike again no matter which candidate wins.
Michael Espiritu
Copeland Wealth Management/ CWM Real Estate
SoCal