Posts Tagged ‘underwater mortgages’

The Increasing Percentage Of “Underwater Mortgages”

Monday, May 16th, 2011

On May 9 Zillow.com released a Press Release titled “First Quarter Home Value Declines Match Worst of Housing Recession; Bottom Unlikely to Appear Before 2012″ with the subtitle “Home Values Show Sharpest Quarterly Decline Since 2008; Negative Equity Rises to 28.4% According to Q1 2011 Zillow® Real Estate Market Reports”

(Other stories regarding this Press Release were found at a May 9 Bloomberg story, “U.S. ‘Underwater’ Homeowners Increase to 28 Percent, Zillow Says” and CNBC.com article of May 9 “Homeowners Drowning in Negative Equity”)

I think it is important to note how quickly the percentage of “underwater” mortgages is increasing relative to the decreases in home prices.  As well, it is important to note that the 28% figure quoted above is a national average; as seen in the Press Release detail, there are many metropolitan areas with significantly higher figures.  Furthermore, it should also be noted that there are various ways to estimate and measure the percentage of “underwater mortgages,” and as such the 28% figure may be understated if another methodology were to be used.

As I have written of previously, the residential real estate market is highly complex and, in my opinion, widely misunderstood.  The increasing rate of “underwater mortgages” should be of great concern, as it likely will feed the growth of various other problems such as “strategic defaults.”

Falling residential real estate prices remain a severe threat to the economy.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1337.77 as this post is written

 

Share

Tags:
Posted in Real Estate | Comments Off

“Underwater Mortgages” Statistics

Wednesday, November 25th, 2009

Yesterday The Wall Street Journal published an article titled “One in Four Borrowers Is Underwater.”

The story contains a variety of statistics with regard to homeowner equity and home ownership issues.  It gives a good overview of the situation, and this facet of the residential real estate situation is not pretty.  As the headline states, 23% of all mortgage holders are “underwater,” i.e. they owe more on their mortgages than the underlying house is worth.

There are several reasons that this situation is important.  A couple include:

  1. These statistics are being generated despite the fact that there has been massive intervention and stimulus programs directed toward residential real estate.  The majority of intervention and stimulus programs in some way, either directly or indirectly, are aimed toward supporting housing.  It is highly disconcerting that we have such a dire situation despite such outsized intervention efforts.  We, as a nation, have committed, both directly and indirectly (via various “guarantees”) an epic amount of money toward this problem.
  2. As I have stated before, I do not believe that we have even come near the bottom of residential real estate prices.  To the extent that residential real estate prices fall from here, this “underwater mortgage” situation will be exacerbated.  A resumption of falling house prices would fuel many other problems, including the temptation of homeowners to commit “strategic defaults.”

As I have written previously (my other Real Estate posts are under the “Real Estate” Category listed on the right-hand side of the home page) the real estate issues facing this country are severe, very complex, and not well understood.

 

back to <home>

SPX at 1107.71 as this post is written

Share

Tags:
Posted in Real Estate | Comments Off

Martin Feldstein’s “Underwater” Mortgage Plan – My Comments

Monday, August 10th, 2009

In the Saturday edition of The Wall Street Journal, there is an op-ed from Martin Feldstein titled “How to Save an ‘Underwater’ Mortgage.”

The editorial provides a good summary of the numbers behind “Underwater” mortgages.  Also, I think the article is beneficial in that it highlights the problem of mortgage defaults and foreclosures, and how “Underwater” mortgages can exacerbate the default/foreclosure crisis.

As the editorial progresses, Martin Feldstein lays out a plan for curtailing the potential problem presented by these ’underwater’ mortgates.

It is concerning this plan that I would like to comment.  I’ll keep the comments to a minimum, as this “underwater” mortgage situation and what to do about it is one that I could write very extensively about…

First, this proposal would entail (yet) another intervention, and as such is subject to the potential risks and unintended consequences of interventions, of which I have previously written.

With regard to this specific proposal ~

One of the problems I see with Martin Feldstein’s plan, and one which recurs frequently with all the bailouts, is that it helps those that, at least by the stated loan-to-value metric, have acted most in error.  Some may use the term “have acted most irresponsibly.”  In the case of these underwater mortgages, Feldstein proposes to have a certain amount of each mortgage reduced for those who have loan-to-value ratios of over 120%.  This is a major issue in that it calls into question the aspect of fairness, a factor I have previously written about.

Another problem I see with the proposal is that it it appears to inherently assume that the current population of 120%+ loan-to-value ratio homeowners is static.  If residential real estate were to decline further, this population would likely increase, perhaps substantially.  In fact, in such a falling residential real estate scenario, a homeowner could have his mortgage rate reduced to 120% loan-to-value and then return above this level quite easily.

____

As I wrote in a June 4 post:

“Solving” our residential real estate problems is going to be most difficult, in my opinion….”

SPX at 1010.48 as this post is written

Share

Tags: ,
Posted in Intervention, Real Estate | Comments Off

“Underwater” Mortgages and “Strategic” Defaults

Thursday, August 6th, 2009

This article caught my interest; it is titled “About half of U.S. mortgages seen underwater by 2011″:

http://www.reuters.com/article/companyNewsAndPR/idUSN0526831020090805

Apparently their projections for “underwater” mortgages is based upon their forecast quoted in the article: “Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.”

While I haven’t spent the time to really develop an in-depth projection of my own as to where the “bottom” will be in residential real estate, I do believe it will be far lower than an additional 14% decline, for a variety of reasons.  If this becomes the case, the “underwater” aspect quoted in the article would presumably be exacerbated.

The Deutsche Bank forecasts mentioned in the article can also be read in conjunction with some other interesting research recently published with regard to ”strategic” defaults, which was mentioned in this Economist article from 6/25/09:

http://www.economist.com/businessfinance/displaystory.cfm?story_id=13905502

This “strategic defaults” issue is important and bears close monitoring going forward, especially if more mortgages go “underwater.”

SPX at 997.08 as this post is written

Share

Tags: , ,
Posted in Real Estate | Comments Off