Half of borrowers with prime loans -- or loans made to borrowers with good credit and income -- will likely end up underwater anyway, according to a recent report.
Already more than one-third of prime mortgage loan borrowers are underwater or owe more on their homes than they're worth and with home prices expected to drop by another 10 percent, half of prime borrowers will likely end up underwater, a Fitch Ratings report found. More than 12 percent of borrowers are seriously behind on their payments according to the report, putting them at risk of defaulting.
“Prime mortgage default rates will stay elevated as home prices fall further and unemployment remains high,” Fitch Ratings Managing Director Grant Bailey said in a press release.
The report indicates that the credit crisis and falling housing prices are taking their toll on homeowners. Compounding those factors, out-of-work home owners are likely having trouble finding a job. U.S. employers added 103,000 jobs in September, which wasn’t enough to push the unemployment rate down from 9.1 percent.
Lawmakers are looking for a way to save hundreds of thousands of Americans from their underwater mortgages and spur a recovery in the housing market. Officials said they hope to unveil a plan in the next few weeks that would allow between 600,000 and 1 million borrowers to refinance their loans and lower interest rates, Reuters reported.
Still, some lawmakers think the plan won’t do enough to help homeowners, Bloomberg reported. Rep. Elijah Cummings (D-Md.) said on Thursday that Edward J. DeMarco, the acting director of the Federal Housing Finance Agency “needs to go further” to lift the 11 million underwater borrowers out from under their mortgages, Bloomberg reported.
Lawmakers are so displeased with DeMarco’s performance that they’re asking President Barack Obama to remove him and appoint a permanent director of the agency, The Wall Street Journal reports. DeMarco was charged with expanding the Home Affordable Refinance Program launched in 2009 to make it easier for underwater homeowners to refinance their loans. So far the program has helped about 865,000 homeowners, The Journal reports, way less than the 4 to 5 million borrowers it was expected to help.
Homeowners typically need to have at least 10 percent equity in their home in order to refinance, according to The Washington Post, but in areas such as Las Vegas and Pheonix, where home prices have been in a free fall, home values have fallen by 60 percent, making refinancing impossible.