By Dennis Norman, on March 24th, 2010  Dennis Norman According to the latest report from the National Association of REALTORS(R), existing home sales in the US in February decreased 0.6 percent to a seasonally adjusted-annual rate of 5.02 million units in February from a revised level of 5.50 million units in January, however this does represent an increase of 7.0 percent from a year ago when the rate was 4.69 million units (seasonally adjusted).
February’s Numbers Show Real Estate is “Local”
Reinforcing the fact that “all real estate is local” the February Existing Home Sales report paints quite a different picture of the housing market depending upon the region of the country:
- Northeast region – February sales increased by 2.4 percent from January and were up 12.0 percent from a year ago
- Midwest region – February home sales increased by 2.8 percent from January and were up 8.8 percent from a year agao.
- South region – February home sales decreased by 1.1 percent from January but were up 6.9 percent from a year ago.
- West region – February home sales decreased by 4.7 percent but were up 3.4 percent from a year ago.
Less is More
Over 72 percent of all existing home sales in February in the US (72.2 percent) were at sales prices of $250,000 or less with almost 36 percent of those sales being $100,000 or less. While most of the sales were in these lower price ranges, sales of higher priced homes in February were significantly higher than a year ago:
 Source: National Association of REALTORS Lawrence Yun, NAR chief economist, said widespread winter storms in February may mask underlying demand. “Some closings were simply postponed by winter storms, but buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity,” he said. “Although sales have been higher than year-ago levels for eight straight months and home prices are much more stable compared to the past few years, the housing recovery is fragile at the moment.”
I don’t like “seasonally adjusted rates of sales”:
If you have been reading my posts for a while you know by now I don’t like “seasonally adjusted” numbers, particularly when artificial stimuli, such as homebuyer tax-credits, can cause an unseasonal spike in sales activity. I much prefer to see the actual numbers and try to garner from them what is going on in the housing market.
The following are the ACTUAL Existing Home sales reported by NAR without any adjustment or fluff:
- There were 302,000 existing homes sold in February which is a 9.8 percent increase from January’s 275,000 sales and a 7.9 percent increase from February, 2009’s sales of 280,000 units.
- Below are highlights from each region:
- Northeast – 52,000 homes sold in February, 2010, an increase of 26.8 percent from January and an increase of 13.0 percent from the year before.
- Midwest – 68,000 homes sold in February, 2010, an increase of 25.9 percent from January and an increase of 9.7 percent from the year before
- South – 113,000 homes sold in February, 2010, an increase of 8.7 percent from January and an increase of 7.6 percent from the year before.
- West – 69,000 homes sold in February, 2010, a decrease of 9.2 percent from January and a increase of 3.0 percent from the year before.
Other highlights of the NAR Report:
- Median price of homes sold in February in the US was $165,100, about the same as January’s revised median sale price of $164,900 and is 1.8 percent less than the median price from a year ago.
- Distressed sales accounted for 35 percent of all home sales in February, a decrease of 7.8 percent from January’s rate of 38 percent.
- First-Time homebuyers accounted for 42 percent of the home sales in February, up from 40 percent in January.
- Investors were the buyers of 19 percent of the homes in February, up from 17 percent in January.
- Repeat home buyers were responsible for approximately 39 percent of February’s sales down from January’s 43 pecent..
- Total housing inventory at the end of February was 3,589,000 homes for a 8.6 month supply, an increase of 10.3 percent from last months 7.8 month supply.
My Take On the Numbers:
I’m somewhat encouraged by this report and think that it supports my theory that the housing market, at least in many areas of the country, is toying with the “bottom”. I think we are going to see the market fluctuate “near the bottom” for some time and then we will see a recovery that I think will take some time to mature.
What to look out for:
- Interest rates – Rates ALWAYS have an affect on the housing market…presently we have near record-low rates, however the Fed Reserve is indicating they will stop purchasing mortgage-backed securities in the next few days and industry experts feel this will lead to higher interest rates.
- Tax Credits– By all indications the homebuyer tax credits have played a role in getting buyers to pull the trigger and has contributed to home sales. The credits come to an end April 30th, unless extended by Congress which I feel is doubtful, and then we will see what happens to the market afterward. First-time buyers, the biggest benificiaries of the credit, make up 40 percent of the sales currently, so they are s significant component.
- Foreclosures – Foreclosures, REO’s and short-sales all put negative pressure on the housing market in terms of home prices and there is no end in site.
- Underwater Borrower Sentiment– There are a record number of people “underwater” on their homes (owe more than their homes are worth) but, according to Robert Shiller, a noted economist, 80 percent of those borrowers still feel like they should continue to pay their mortgages and stick it out. According to a recent report by First Amercian CoreLogic, this sentiment changes dramatically once homeowners exceed 25 percent negative equity or exceed $70,000 in negative equity…according to the same report the average negative equity for underwater borrowers at the end of 2009 was $70,700. The number of underwater homeowners was 11.3 million at the end of 2009; if the sentiment of these homeowners change and they start walking away from their homes, look out housing market!
By Dennis Norman, on February 23rd, 2010 Over Fifteen Percent of Missouri Borrowers are Underwater-Another 5.6 Percent Are Almost Underwater
Dennis Norman According to a report released today by First American CoreLogic more than 11.3 million U.S. mortgages, or 24 percent of all mortgaged properties, are in a negative equity position meaning the borrowers owe more on their mortgage than their home is worth as of December 31, 2009.
There were approximately 600,000 more borrowers underwater on December 31, 2009 than just three months earlier. In addition, there were an additional 2.3 million mortgages approaching negative equity at the end of last year  .
Together, negative equity and near-negative equity mortgages account for nearly 29 percent of all residential properties with a mortgage nationwide.
Like foreclosures, borrowers with negative equity are concentrated in five states: Nevada, which had the highest percentage of negative equity with 70 percent of all of the states mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among these five states the average negative equity is 42 percent of the mortgages compared with an average of 15 percent for the remaining 45 states.
Other highlights from the report are:
- The states with the highest percentage increases in negative equity during 4th quarter 2009 were Nevada, Georgia and Arizona.
- The rise in negative equity is closely tied to increases in foreclosures and is a major factor in changing the behavior of homeowners. According to the report, once a homeowner has over 25 percent negative equity or the mortgage balance is $70,000 higher than the current property value, homeowners begin to default with the same propensity as investors. In other words, they stop looking at their home from an emotional standpoint and start treating it like a bad investment.
- The average negative equity in 4th quarter was $70,700, up from $69,700 in 3rd quarter.
- Of the over 47 million homeowners with a mortgage, the average loan to value ratio (LTV) is 70 percent. More than 23 million, or 49 percent, of all homeowners with a mortgage have at least 25 percent equity in their home, and over 12 million have at least 50 percent equity in their homes.
Even though the housing market is showing signs of stabilizing in many areas, the number of people underwater on their mortgages is something that gives me great concern. As shown in the corelogic report, the average amount of negative equity has now broken the $70,000 threshold where homeowners are more easy to succumb to walking away. As borrowers due this, we will see the mortgage delinquency rates, which are already at record highs, continue at a record pace, and we will see the shocking foreclosure rate continue for some time. This will continue to put downward pressure on the housing market making an actual recovery that much more difficult.
I hate to sound gloom and doom, but I think unless some good things start happening (a whole lot less unemployment for one) this will be reality.
   
By Dennis Norman, on February 11th, 2010  Dennis Norman
This morning the Congressional Oversight Panel issued a report, “Commercial Real Estate Losses and the Risk to Financial Stability” which expressed concerns about coming losses in Commercial Real Estate and also described how these losses could affect nearly everyone.
 The report states the panel “is deeply concerned that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks, and prolong an already painful recession.”
According to the panel, there are $1.4 trillion in commercial real estate (CRE) loans that were made in the last decade that will require refinancing in 2011 through 2014 and “nearly half (of the loans) are at present underwater,” meaning the borrower owes more o the loan than the property is worth. The concern is that “even borrowers who own profitable properties may be unable to refinance their loans as they face tightened underwriting standards, increased demands for additional investment by borrowers, and restricted credit.”
The commercial real estate crisis is not expected to bring down any of the largest banks however community banks face “the greatest risk of insolvency due to mounting commercial real estate loans losses” according to the report.
Think this won’t affect you if you are not an investor in commerical real estate or a banker? Think again…According to the panel “a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American.” When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. Because community banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery and extend an already painful recession.
An analysis of the St. Louis commercial real estate market by the National Association of REALTORS(R) does not paint a real pretty picture. As you can see from the charts below vacancies have been rising in all four types of commercial property, absorption rates have been negative, and both are forecast to stay that way with the exception of the retail market which is projected to show improvement in vacancies and absorption this year.
By Dennis Norman, on January 11th, 2010 Dennis Norman Depending on which estimate you believe, somewhere between one-third and one-half of the homeowners with a mortgage in the U.S. owe more on their homes than their homes are currently worth. This has lead to an unprecedented amount of short-sales and in many cases, a lender “forgiving” you of the short-fall (the amount of your loan your sale proceeds were not adequate to pay) which, in the past could have left you owing taxes on the “forgiven debt”.
For some of those underwater homeowners that are not fortunate enough to do a short sale they may end up losing their homes through foreclosure. Like short sales, in the past some foreclosures also resulted in the homeowner finding they owe taxes as a result of the foreclosure.
Fortunately seller’s in these situations today are getting some relief through the Mortgage Forgiveness Debt Relief Act which, according to the IRS, “generally allows exlusion of income realized as a result of modification of the terms of a mortgage, or foreclosure on your principal residence.” This applies to debt forgiven in 2007 through 2012 up to $2 million in forgiven debt.
The following are some FAQ’s on the subject from the IRS. This is for information only…you should consult your CPA or tax professional to see how this may or may not apply to your situation:
What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.
Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.
How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.
Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.
If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.
Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.
Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.
How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.
Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.
If part of the forgiven debt doesn’t qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.
I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.
If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.
What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.
How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.
(2) File Form 982 with your tax return.
By Dennis Norman, on December 17th, 2009
- Dennis Norman
Last week I did a post about the Obama Administrations’ Home Affordable Modification Program (HAMP) and showed how it really has not been effective in helping keep families in their homes and avoid foreclosure as was the intention by the administration. When my kids tell me they don’t like the way I want them to do something I usually challenge them with “if you don’t like my way, tell me a better way to do it“. So with this in mind I went looking for an answer to this question.
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Why Do Homeowners Default on Mortgages?
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Issues With Current Solutions to Mortgage Default
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An Alternative Approach to Mortgage Default
I focused primarly on number two as it addressed the problem I was looking for the answer to. Their (Loan Value Group) analysis of the situation was consistent with my post last week in that they determined that government programs to provide solutions to borrowers defaulting on mortgages “have so far proven to be ineffiective for two main reasons…first, certain solutions are founded on the idea that default occurs becasuse households have no choice due to insufficient income, and thus fail to address deafult that is a rational choice that depends on the homeowner’s balance sheet. Second, certain solutions face substantial practical hurdles to implementation.”
Translation:
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Some borrowers choose to default as they are underwater and tired of throwing good money after bad, not because they cannot make the payments.
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Government programs have too much red tape.
The report goes on to assess the effectiveness (or lack thereof) of various government programs that were supposed to be the answer. Here are the results:
- Tax Credits. These improve the homeowner’s income, but are ineffective for balance sheet driven strategic default. First, the effect of tax credits is very small compared to the amount of negative equity, and so does little to repair the homeowner’s balance sheet. Second, the homeowner can use the tax credits to rent a new property, allowing him to default on his existing mortgage. In addition, if they fail to prevent default, they are simply a cost to the government. Finally, while the most recent plan to provide tax credits is relatively new, there is increasing evidence that fraud is being used to secure those credits.
- HOPE for Homeowners Act of 2008. This involved the FHA insuring lenders that refinancetroubled loans into fixed-rate mortgages. As of February 2009, only 451 applications had been received and 25 loans finalized, compared to the expected participation of 400,000. The low participation has been mainly attributed to two issues of loan modifications discussed in the prior subsection: the fees associated with a modification, and the need for the lender to reduce loan principal to 90% of a property’s current value.
- Home Affordable Modification Program (HAMP). This is similar to a payment reduction: the servicer modifies the loan to reduce monthly payments to 31% of a homeowner’s pre-tax income. As of August 2009, only 9% of delinquent borrowers (235,000 loans) were in trial modifications, compared to the goal of having 500,000 participants by November 2009.
This low take-up has been attributed to a number of causes. From the borrower’s side, the confusion and disclosure requirements described above have been an impediment; the New York Times (“Winning Lower Payments Takes Patience, and Luck”, 11/29/09) discusses “the confusing and frustrating ways of the Obama administration program aimed at keeping millions of troubled American borrowers in their homes.” One large institution tasked with using a third party to modify loans through HAMP has found that in Q2 2009, nearly 42% of loan modifications that would have resulted a monthly payment reduction were never completed by the borrower.
So what is the answer?
Almost 11 million homeowners underwater on their mortgage (they owe more than their homes are worth) and this is leading to the “strategic mortgage defaults” that are addressed in this report. In order to curtail these defaults there must be new thought given to how to prevent them. Since these underwater homeowners will be choosing to default there must be incentives for the homeowner to choose not to dafault and instead enable the borrower to make payments. In addition, since this decision is driven by negative equity rather than the inability to make payments, there must be something done to address the principal balance.
While reducing the principal balance of an underwater borrower’s loan (principal forgiveness) seems to be the answer to the problem the report does point out problems associated with principal forgiveness including:
- It triggers a full and immediate accounting write-down to the value of the loan.
- It is irreversible and cannot be subsequently “clawed back” for those who redefault or had committed fraud (e.g. when applying for the principal reduction).
- The lower balance reduces the interest received by the lender. Thus, if the homeowner still ends up defaulting, the lender has been made worse off by the loan modification.
- It creates a “moral hazard” problem: the homeowner may attempt to make further risky housing investments in the future, believing that he will receive principal forgiveness if he falls into negative equity
- The impact on homeowner behavior may be limited for two reasons.
- Even a large dollar reduction in absolute terms is small relative to the size of an existing mortgage. If the homeowner “frames” the reduction together with the mortgage (i.e. compares its magnitude to the size of the mortgage rather than evaluating it in isolation), he may feel that his overall position has changed little – for example, a $10,000 reduction on a $200,000 mortgage is only a 5% decrease.
- The loan modification is “non-salient”: it is a one-time event which may be subsequently forgotten, and thus have little ongoing incentive effect.
The above practical and conceptual issues with a principal reduction are serious in reality. As a result, banks have been very reluctant to write off mortgage principal: only 10% of loan modifications involve principal forgiveness. Considering all types of loan modification, 58% of the modifications made in Q1 2008 ended up redefaulting.
So while we have identified the problem, negative equity, and even the solution, principal forgiveness, you can see from this report by Loan Value Group there are many hurdles along the way. What will happen first? Will the government figure out a way to address this issue without so much red tape that the program is actually successful? Or, will the real estate market come back to the point that underwater borrowers see light at the end of the tunnel? I hate to be pessimistic, and I am not pessimistic by nature, however I don’t have confidence in either of these things happening any time soon which is very unfortunate for all the homeowners that have found themselves underwater.
By Dennis Norman, on December 8th, 2009
- Dennis Norman
Laurie Goodman, the Senior Managing Director at Amherst Securities, testified today before the House Financial Services Committee hearing on “The Private Sector and Government Response to the Mortgage Foreclosure Crisis“. Amherst Securities specializes in the trading of residential mortgage backed securities and charges Goodman with keeping them and their customers abreast of trends in the market.
Today, in her testimony, Goodman told the committee she hoped to make two primary points in her testimony:
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“The housing market is fundamentally in very bad shape. The single largest problem is negative equity.”
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“The current modication program does not address negative equity, and is therefore destined to fail. It must be amended to explicitly address this problem. And there is no single solution; it is a combination of policy measures. Clearly, the arsenal of solutions must include principal reduction and must explicitly address the loss allocation between first lien investors and second lien investors.”
In her testimony Goodman cited some very interesting (albeit it depressing) facts and figures, including:
As a reason for estimating failure on such a large percentage (88.6 percent) of the 7.9 million borrowers that were delinquent, Goodman said;
“The real problem is that default transition rates are high and cure rates are low because the borrower has negative equity in their home. Most borrowers do not default because of negative equity alone. Generally, a borrower experiences a change in financial circumstances. If the home has substantial negative equity, they will choose to walk.”
To prove her point, Goodman cited a study that was done by Amherst which looked at Prime borrowers that were 30 days delinquent on their mortgage 6 months ago. They then sorted the loans by the amount of equity the borrowers had, then came back 6 months later to see which borrowers were at least 60 days delinquent. For borrowers with 20 percent equity, only 38 percent had become 60+ days delinquent. For borrowers with substantial negative equity (owed 41-50 percent more on their homes than the value) 75 percent had become 60+ days delinquent.
During her testimony, Goodman said “there is a substantial group of people who have argued that the primary problem is not negative equity, it is unemployment. This argument is not supported by the evidence. First, the increase in delinquencies for subprime, Alt-A and pay option ARM mortgages began to accelerate in Q2, 2007. By contrast, we did not begin to see large increases in unemployment until Q3, 2008.”
Goodman goes on to point out the results of another study done by Amherst Securities entitled “Negative Equity Trumps Unemployment in Predicting Defaults” which included the following:
- The combined loan-to-value ratio or CLTV plays a critical role. For prime and Alt-A loans in low unemployment areas the default frequency was at least 4 times greater for borrowers underwater by 20 percent than it was for borrowers with at least a 20 percent equity position.
- If a borrower has positive equity, unemployment plays a negligible role. We found that all borrowers with positive equity performed similarly no matter the local level of unemployment.
- If a borrower has substantial negative equity, unemployment plays a role, but less than CLTV. If the borrower has a CLTV greater than 120, the default frequency was 50 percent to 100 percent higher in a high unemployment area versus a low unemployment area.
“The evidence is irrefutable. Negative equity is the most important predictor of default,” said Laurie Goodman.
In addition to Laurie Goodman, there was testimony today from Dr. Anthony B. Sanders, Distinguished Professor of Real Estate Finance, Professor of Finance School of Management, George Mason University. Dr. Sanders also paints a pretty dismal picture of the success of the Obama administration loan modification program. Dr. Sanders said “it is a real challenge to servicers to make loan modifications succeed when 70 percent of modifications that have only interest rate cuts have gone into re-default after 12 months.
Dr. Sanders goes on to state that “only 12.5 percent of eligible borrowers receiving permanent loan modifications are able to keep them current. And it is entirely possible that the “success” rate could enve fall below 10 percent of eligible loans.” Dr. Sanders says the reason for this is:
“the degree to which many residential loans in the United States are in a negative equity situation. According to a Deutsche Bank research report, they are expecting 25 million homes to be in negative equity position.”
The second reason Dr. Sanders gave as the cause for such a bleak outlook for successful permanent loan modifications is the unemployment rate. He said “while 10 percent report(ed) unemployment rate is bad enough, the true unemployment rate (including wage and salary curtailment) is closer to 17.5 percent. “
I am glad to see testimony by these two professionals, and others, to help convince Congress that the loan modification plan, in it’s present form, is not effective. I think the evidence is overwhelming that negative equity is the major problem and must addressed in their “stimulus” and “recovery” programs.
By Debi Averett, on November 27th, 2009 In the ongoing debate about whether one should walk away from an underwater mortgage or not, one University of Arizona professor speaks out strongly in favor of taking a hike. According to Brent T. White, an associate professor of law at the University of Arizona:
A failure to grasp the true economics of the situation is holding back many Americans whose home values have dropped far below the amount they owe and who would be better off renting, Mr. White says. Fear, shame and guilt also are preventing rational decisions, he believes. And, he says, those “emotional constraints” are encouraged by politicians and bankers, who ruthlessly and amorally follow their own economic interests while telling Joe Soggy Homeowner he has a moral duty to pay his debt so long as he possibly can. Continue reading “The Cost of Not Walking Away From An Underwater Mortgage“
By Dennis Norman, on November 24th, 2009
- Dennis Norman
According to a report released today by First American CoreLogic nearly 10.7 million U.S. mortgages, or 23 percent of all mortgaged properties, are in a negative equity position meaning the borrowers owe more on their mortgage than their home is worth as of September 30, 2009.
Here in St. Louis, as of September 30, 2009, there were 87,557 homeowners in St. Louis that were “underwater” on their mortgage, meaning they owe more than their home is worth. This works out to 15.14 percent of the homeowners in St. Louis with a mortgage, so about 2/3 of the national rate.
If you read my post about CoreLogics 2nd quarter Continue reading “St. Louis Real Estate News: Over 15 percent of St Louis homeowners with a mortgage are underwater“
By Dennis Norman, on November 9th, 2009
- Dennis Norman
The percent of American home owners with mortgages in a negative equity position fell to 21 percent in the third quarter of this year, down from 23 percent in the second quarter, as home values stabilized in the short term and more underwater homeowners lost their homes to foreclosure, according to the third quarter Zillow Real Estate Market Reports.
By Charles Hugh Smith, on November 4th, 2009 Loose lending standards in government-backed mortgages is setting up the next wave of defaults and sharp declines in housing prices.
 Charles Hugh Smith, Of Two Minds Beneath the hype that housing has bottomed is an ugly little scenario: lending standards are still loose and the low-down payment, high-risk loans being guaranteed by government agencies are setting up the next giant wave of defaults and foreclosures.
You might have thought that the near-demise of risky-mortgage mills Fannie Mae and Freddie Mac would have cooled the supply of highly leveraged government-guaranteed mortgages–but you’d be wrong, for the Feds have compensated for the implosion of the Fannie/Freddie housing-bubble machines by ramping up their other two mortgage mills: FHA and Ginnie Mae. Continue reading “Setting Up the Next Leg Down in Housing“
By Debi Averett, on November 3rd, 2009 I posted yesterday on the Wall Street Journal article Report Sheds Light on Why Homeowners Walk Away. A couple of commenters on the WSJ article said why they were walking away from their mortgage, and I thought their comments were interesting enough to repeat. The first walker says that as a good borrower he is unable to have his loan modified, the second blames bank policies:
The banks (my lender is CITI) are unwilling to modify mortgages for the people able to pay. I suspect if the people underwater, but with money and good credit – you know, responsible people – were able to secure a more reasonable APR that made their monthly payments less painful, they’d more easily tolerate paying on that over-valued house. Continue reading “Why We’re Walking Away“
By Dennis Norman, on September 28th, 2009
 - Dennis Norman
By: Dennis Norman
I came across an interesting chart that I want to share. The chart below, courtesy of Chart of the Day, shows median home prices in the U.S. since 1970 (adjusted for inflation). As you can see from the chart, home prices trended upward from 1970 until peaking in the late 70’s (right around 1979 when I got into real estate, great timing on my part!) and then began dropping until the mid 80’s when prices began a rather rocky and unsteady climb upward.
As the chart illustrates, median home prices really started increasing, and at a more rapid rate, around 1991 and continued until 2005, basically the peak of the market. Since 2005 the trend has been downward to the point where median home prices have fallen about 30 percent from the peak. Continue reading “Home prices down 30 percent since peak in 2005 and trend is downward“
By Dennis Norman, on September 15th, 2009
- Dennis Norman
Before the sub-prime mortgage implosion Karen Weaver warned of the coming crisis. Karen Weaver, the Global Head of Securitization Research for Deutsche Bank, said last month that she expected home prices to continue to drop through the 1st quarter of 2011. She also predicted that nearly half of the homeowners with mortgages would end up being underwater on their mortgages.
Yesterday Ms. Weaver said that in spite of the recent positive news on the housing market that she had not changed her position and is still predicting home prices to fall another 10 percent before finally reaching bottom. Ms. Weaver said “serious delinquencies are still rising rapidly in mortgages, unemployment reached a new cycle high, inventory in most parts of the country is elevated and in some areas affordability is backtracking.” Continue reading “Deutsche Banks’ Weaver says housing market has not hit bottom yet“
By Dennis Norman, on August 14th, 2009
- Dennis Norman
According to a report issued by First American CoreLogicmore than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, are in a negative equity position. In addition, according to the CoreLogic report, there are an additional 2.5 million mortgaged properties that are approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage.
The numbers for St. Louis are a little better than the U.S. numbers. In St. Louis, 170,871, or 29.50 percent of all properties with a mortgage, are in negative equity. A total of 208,259 mortgages, or 35.95 percent, are in near negative equity or negative equity.
The total property value of the property in St. Louis that is at risk of default is over $26.5 billion. By comparison in Chicago there is $134 billion of property at risk of default and $310 billion in Los Angeles.
Negative equity, often referred to as “underwater” or “upside down”, means the borrower owes more on their mortgage than the home is worth. Near negative equity is when mortgages are within five percent of being in a negative equity position. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
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