Tag Archives: Negative Equity

The analysts at Fitch Ratings warn that before the housing market pulls out of this downturn, half of prime borrowers could wind up underwater on their mortgage. Data released last month by CoreLogic shows that one in five of all residential mortgages in the U.S. is in a negative equity position. But segment out just those homeowners with prime mortgages, and Fitch says one in three currently owe more on their mortgage than the home is worth.

A new quarterly survey of bank risk professionals from FICO paints a decidedly pessimistic picture of housing's future. The company describes its latest results as a reversal of the growing optimism seen in late 2010 and early 2011. The survey shows that bankers expect mortgage defaults and foreclosures to remain elevated for at least five more years, and housing prices nationally to hold below the pre-crisis levels of 2007 until the year 2020.

If all of Fannie Mae's and Freddie Mac's borrowers paying interest rates that are higher than the median rate were to refinance at 4 percent, the savings would total $63 billion. While such an option would not bring the total $63 billion in savings to fruition, Moody's chief economist, Mark Zandi, says ""even a fraction would be a big plus."" According to Zandi, the single most effective policy move for the housing market would be to facilitate more mortgage refinancing.

Home price depreciation over the past few years has made housing more undervalued relative to incomes than ever before, yet home sales have continued to decline. Even more striking is that the dampened activity can be largely attributed to a weakening in demand from cash buyers and investors, according to the researchers at Capital Economics. The firm has found that since January, the number of homes purchased by cash buyers and investors has fallen by 26 percent.

At a hearing before a Senate subcommittee this week, witnesses urged Congress to help more underwater homeowners refinance their loans at current, record-low interest rates. The Home Affordable Refinance Program (HARP) allows underwater homeowners with mortgages backed by Fannie Mae and Freddie Mac to refinance their mortgages at lower interest rates. However, the program has helped fewer than 900,000 of the more than 10 million underwater homeowners in the country.

Nearly 10.9 million, or 22.5 percent, of all residential mortgages had negative equity at the end of the second quarter of the year, according to a report released Tuesday by the analytics firm CoreLogic. The figure is actually a slight improvement from the 22.7 percent of all mortgages with negative equity in the first quarter of 2011. CoreLogic says nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages.

President Obama's speech introducing his new Jobs Act included a pledge to refinance millions of home mortgages. Documents released since then by the White House and a key housing regulator reveal that the government-led refi push will indeed center around an overhaul of the Home Affordable Refinance Program (HARP). The administration says it intends to remove the barriers that exist in the current program to allow more borrowers to qualify as long as they have a history of making their payments on time.

Word on the street is the administration is sizing up a new program that would provide millions of homeowners with new, lower interest, lower payment mortgages. The initiative would allow borrowers with loans backed by Fannie Mae and Freddie Mac to refinance at today's rates, even if they are in negative equity or have bad marks on their credit. Two Columbia business professors say such a move would save homeowners an average of $350 a month and pump an extra $118 billion into the economy.

The ratings agency DBRS made principal reductions the focus of a research note released Monday. The firm's analysts stressed that as a modification technique, debt forgiveness has long been regarded as controversial in the mortgage industry due to its moral hazard risk and the potential impact it could have on the performance of securitized mortgages. As such, it's been utilized on a very limited basis. Based on first-quarter data, DBRS found that principal reduction modifications accounted for 2.80 percent of the total mods performed.

The term 'underwater' has become common industry jargon in today's marketplace of depressed home values and high loan balances, and it's increasingly making its way into the everyday vocabulary of consumers. Twenty-six percent of mortgage borrowers now say they are underwater, according to a new survey conducted by Fannie Mae. The GSE also found that the idea of being in negative equity is more prevalent among minorities, and that underwater borrowers are more likely to know someone who has defaulted on their mortgage.