Tuesday, May 15, 2012, AM | Leave Comment
On Monday Oct 27, 2008, I posted a small article about underwater mortgage and that it was a growing threat to the U.S. economy. Well! Over three years have passed and it’s still a growing threat to the national economy not to mention it has devastated many folks’ financial lives. Many have wrapped up their mortgages and have left their properties to mortgage lenders. Also known as Negative Equity, it has ruined many folks’ finances.
What CoreLogic found…
On March 1, 2012, CoreLogic released its research showing that 11.1 million, or 22.8 percent, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011.
This is up from 10.7 million properties, 22.1 percent, in the third quarter of 2011. An additional 2.5 million borrowers had less than five percent equity, referred to as near-negative equity, in the fourth quarter.
Together, negative equity and near-negative equity mortgages accounted for 27.8 percent of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter.
Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.
So from third quarter to fourth quarter of 2011, underwater mortgages have increased by 400,000 (11.1 – 10.7 million.) In dollar terms, it has increased by $100 billion ($2.8 – $2.7 trillion.) That’s no small change in three months.
We all know what underwater mortgage or negative equity is…
Underwater mortgage or negative equity occurs when the total remaining mortgage amount left on the house is more than the current market value of the home is.
This situation has led to the high rate of foreclosures which often occurs primarily because of two things:
- When the homeowner has negative equity and also
- Experiences an unexpected loss of income.
The owner does not have enough equity to sell the house and is also unable to pay the mortgage. Though the appearance of negative equity has evolved over time, the typical borrower today with negative equity
- Has a refinanced loan,
- Has no junior liens,
- Owns a single-family residence, and
- Is an owner-occupant.
It could have swung in the positive direction if the economy was getting better much faster with many more folks gainfully employed. But remember this is on paper only.
If you somehow hang on to your home, you might get out of the quagmire of the underwater mortgage and you might come out ahead.
No matter how pessimistic a situation becomes, you have to be optimistic. Your finances might get better. Who said that?
Refinancing underwater mortgages
Many folks get into a panic mode the moment they hear their mortgage is underwater. There are options that are available to you to lower your monthly payments and hopefully avoid selling the home before its time.
Fannie Mae has created Know Your Options website to help homeowners find the information they need, so they can get help before it’s too late. Avoid foreclosure. Get the help you need.
If your loan is owned by Fannie or Freddie, you may qualify for the Home Affordable Refinance Program, or HARP.
Federal Housing Administration loans also have refinancing options.
One of them, the FHA Short Refinance Option – Help For Non-FHA Borrowers, requires the lender to write down at least 10 percent of the remaining balance of the loan.
Also, the homeowner to be current on payments, among other requirements.
Still other programs such as Home Affordable Modification Program (HAMP) are available for people who may have lost their jobs or faced other income hardships.
In a Nutshell
If you can, stay in the home that you bought so fondly. Your loss is on paper only unless you leave your home to your financial lender or sell it for a loss. In the latter case, you must come up with the difference.
For example, if you you have $200,000 mortgage left on your home and you sell it for $150,000, you are still short $50,000 that you have to give back to the lender.Facebook.com/doable.finance