Posted By RichC on February 23, 2010
Looks like a serious problem for homeowners, mortgage companies and banks alike. It certainly isn’t promising for the new home market either.
Nearly one in four U.S. homeowners with a mortgage owed more than their homes were worth at the end of 2009, underscoring the challenges facing any sustained recovery in consumer spending and housing. Some 11.3 million households had negative equity at the end of the fourth quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif., up from 10.7 million at the end of the third quarter—
Problems are concentrated in the states that have had the biggest home price declines. In Nevada, seven in 10 borrowers were underwater at the end of December, up from 65% three months earlier. Nearly half of all borrowers in Arizona and Florida and one third of borrowers in California owe more than their properties are worth.
“Negative equity is a long-term problem for us,” says Mark Fleming, chief economist at First American CoreLogic. “Some of these markets have lost from their peak 50% of their value. How many years at 5% growth would it take to bring it back?”
High rates of negative equity also raise the specter that more borrowers who can afford their mortgages will choose to walk away from their homes and rent. More than half of all borrowers in Nevada owe at least 25% more than their homes are worth. “People who are vastly underwater will look at what they’re paying compared to what they can rent, and those people are throwing their keys back,” says Daniel Alpert, managing director at Westwood Capital.
A separate study last year by researchers at Experian Information Solutions Inc., a credit-reporting company, and consultants Oliver Wyman Group estimates that 588,000 U.S. mortgage borrowers defaulted strategically in 2008, more than double the year-earlier total. The researchers identified strategically defaulting borrowers as those with perfect payment histories who suddenly stopped making mortgage payments and made no attempt to become current, even as they paid other bills.