Chilling-- 24% of All US Homes w/ Mortgages Underwater(11.3mil homes/$801bil) LINK

[Blackhatjack]

This report indicates we are on the cusp of another big drop in housing prices as up to 24% of homeowners underwater are likely to 'walk away', and there is still no effective program in place to help these homeowners 'renegotiate' their loans.


http://www.dsnews.com/articles/underwater-mortgages-increase-to-113m-first-american-2010-02-23
Underwater Mortgages Increase to 11.3M: First American
02/23/2010 By: Carrie Bay

"According to a new study released by First American CoreLogic Tuesday, more than 11.3 million residential properties were in negative equity at the end of 2009. That equates to 24 percent of all homes in the United States with mortgages, up from 23 percent, or 10.7 million homes, at the end of last year’s third quarter. All told, the nation’s homeowners are a combined $801 billion underwater.

First American says an additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide."

SKIP

"First American says the rise in negative equity is closely tied to increases in pre-foreclosure activity and is a major factor in changing homeowner default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property value, owners begin to default with the same propensity as investors, the company explained.

Those conclusions don’t bode well when juxtaposed with the current market figures. The segment of borrowers that are 25 percent or more underwater account for over $660 billion, or 82 percent, of all negative equity. The average equity for an underwater borrower in Q4 was -$70,700, up from -$69,700 in Q3 2009."

MORE

[AllentownJake]

1. More people will walk away this year

Further fucking up the housing market.

[Kablooie]

2. Wouldn't banks prefer to renegotiate rather than have to dump an empty house?

Or is selling the bargain basement priced home a better deal for the bank?

[ipaint]

3. It's not in their best interest to negotiate.

A paper by Brent T. White University of Arizona - James E. Rogers College of Law pretty much explains why.

Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis

pg 39 - 42

"...Recent studies seeking to explain this apparently irrational behavior have shown that lenders are simply operating to maximize profit and minimize losses, just as they would be expected to do. First, lenders know that borrowers with high credit scores are unlikely to default even at high levels of negative equity. To modify loans for these homeowners would be to throw money away – and to encourage more homeowners to ask for modifications. Second, a significant number of homeowners who temporarily default on their mortgages “self-cure” without any help from their lender – though self cure rates have dropped precipitously in the last two years.
Again, to modify the loans of individuals who would otherwise self cure would be to throw away money. Third, homeowners with poor credit, or who end up in arrears because of “triggering events,” such as unemployment, divorce, or other financially devastating circumstances are likely to default on the modified loan as well. To modify loans for these individuals is to waste time and risk housing prices falling further before the lender eventually has to foreclosure and sell the property anyway."

Given these economic incentives for the lender, a seriously underwater homeowner with good credit and solid mortgage payment history who responsibly calls his lender to work out a loan modification is likely to be told by his lender that it will not discuss a loan modification until the homeowner is 30 days or more delinquent on his mortgage payment.

The lender is making a bet (and a good one) that the homeowner values his credit score too much to miss a payment and will just give up the idea of a loan modification. However, if the homeowner does what the lender suggests, misses a payment, and calls back to discuss a loan modification in 30 days, the homeowner is likely to be told to call back when he is 90 days delinquent.
In the meantime, the lender will send the borrower a series of stronglyworded notices reminding him of his moral obligation to pay and threatening legal action, including foreclosure and a deficiency judgment, if the homeowner does not bring his mortgage payments current. The lender is again making a bet (and again a good one) that the homeowner will be shamed or frightened into paying their mortgage. If the homeowner calls the lender’s bluff and calls back when he is 90 days delinquent, there is a good possibility that he will be told that his credit score is now so low that he does not qualify for a loan modification.

The homeowner must then decide whether to bring the loan current or face foreclosure. If the homeowner somehow makes clear to the lender that he has chosen foreclosure, the lender may finally be willing to negotiate a loan modification, a short-sale or a deed-in-lieu of foreclosure – all of which still leave the homeowner’s credit in tatters (at least temporary)."

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1494467


The game is fixed. People need to dump the shame and guilt and do what is in their own financial interest, just like their lenders do everyday.

[TwilightGardener]

5. This study misses one giant reason why those who are upside down

on their mortgages (but can still make the payments) don't simply walk away--everyone has to live somewhere, and people tend to have an emotional attachment to their homes. That's why people don't generally act like banks and businesses. The bank can view a home as an investment to keep or dump, but the bank doesn't raise its children in that home, doesn't need a fenced yard for the dog, doesn't send its children to school in that community. A home's market value is one thing, but the value to the people who live in it is another--and if they walk away, are they going to end up in a better home, in a better neighborhood, anytime soon? That's the question homeowners have to grapple with.

[ipaint]

6. And that is the emotion the banks rely on and manipulate to their advantage hence the guilt trip.

If your underwater and it seriously threatens your financial security then the dream of the house with the white picket fence, the good schools and great neighborhood is already dead.

[DCKit]

4. And, as long as those houses aren't in foreclosure, they're a + on the books.

It's (more of the same) creative accounting that will bring yet another shit-storm down on our heads, the second it reaches critical mass.