Half Of Prime Mortgage Borrowers May End Up Underwater: Report

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.

Comments

[ReaItors Are Liars]

03:37 PM on 10/11/2011

PUBLIC SERVICE ANNOUNCEMENT

Folks, DO NOT buy housing right now. Prices are falling in every area of the country. Those areas that haven't fallen large amounts merely have MUCH further to fall.

[Siebenstein]

03:22 AM on 10/11/2011

Please sign this petition:
https://wwws.whitehouse.gov/petitions#!/petition/create-regulation-private-banks-convert-option-arms-bought-post-2004-and-pay-lost-principal/l8vrNf1q

[ReaItors Are Liars]

02:52 PM on 10/11/2011

Not going to happen.

[Siebenstein]

04:30 PM on 10/11/2011

didn't ask for your opinion, just for people who want to sign.

[MyResponsibility]

08:04 PM on 10/10/2011

Being 'under water' is meaningless to one who continues to have the means to pay the note. The mortgage payment doesn't change because the house is now worth less than one owes.

[ReaItors Are Liars]

09:13 PM on 10/10/2011

It's not meaningless. In fact it's the most important criteria.

If you're making grossly inflated payments on a rapidly depreciating asset like houses, you'll never recover financially. It's a hopeless cause to stay and pay.

[MyResponsibility]

09:31 PM on 10/10/2011

It is meaningless. One makes a decision to buy a home not first because it is an "appreciable asset," they buy it first because it a) suits their family's needs, and b) because their payment works. That a home is now worth less than what it was when they bought it doesn't change the fact that the house still fits their family's needs, and the payment is still affordable. That a home may not be worth today what it once was yesterday does not mean that one won't recover financially. It is not a hopeless cause to stay and pay. My house today is worth 70% what it was when I bought it. I now owe much more that it is worth. I'm not looking to sell, my payment today is the same as it was 5 years ago when I bought it. I still have the same number of family members needing shelter. One's loss is not realized unless they sell the property.

[Siebenstein]

03:31 AM on 10/11/2011

incorrect

[MyResponsibility]

10:28 AM on 10/11/2011

Not incorrect.  I'm 'underwater.'  My income has not gone down, my family has not shrunk, my housing needs have not changed.  My payment is still the same today as it was back in 2007 when I bought it.  I can't rent a 5 bedroom apartment with a basement and 4 garage stalls, with a private back yard.  Although I can rent an apartment with 4 bedrooms with no garage, or any of my other needs, for about $200 more than I'm currently paying for my 'underwater' home.  Such a move would guarantee that I'd be pissing my money away as there is zero chance of return.  

That being said, the concept of home ownership is really misunderstood by people like you.  A home owner is ALWAYS underwater, even in good times.  A $250k mortgage at 5% interest, on a $300k home will cost the homeowner almost $600k over 30 years of the note - twice the home's purchase price.  Add to that 2 - 3 roofs, 5 exterior paints, replaced HVAC and appliances, interior updates, there is never a time that a homeowner is really above water. 

Home ownership only provides the owner an opportunity to have an real asset in several years compared to a renter who will never have an asset at any point of their renting.

[norkas]

05:38 PM on 10/10/2011

I believe also that some homeowners who purchased homes when the market was allot higher and have seen their property go down 40% - 50% are just walking away even though they can still afford to make payments. Please take my word for this i have a friend who knows someone who purchased 20 properties and could afford to keep all of them he just walked away and did not care about his credit rating.

Reviewing a single home buyer i have no doubt the same is happening which will further effect the housing industry.

[weareallzombies]

03:04 PM on 10/10/2011

I guess my question on this situation is: just because your home value drops how does this effect your payment? I understand no one wants to be paying thousands more than what a house is worth, but how does this cause someone to not be able to make a payment? Honest question because I have never had a mortgage and don't understand the business of mortgages.

[iam99]

12:40 PM on 10/10/2011

For the most part it was not the buyers that engaged in the multiple frauds when putting the deal together, issuing docs and getting signatures, securitizing the loans, etc.
It was a designed breakdown of the historically accepted system of doing this business that allowed the criminality to flow.

Hiring of William K. Black is an excellent answer here.

[4eva]

11:58 AM on 10/10/2011

You can either make your monthly payments or you cannot.
It has nothing to do with being 'underwater'.

You either made a good investment or a bad investment.
There was no guaratee either way.

[MSROADKILL612]

07:28 AM on 10/10/2011

if u r underwater, beware of sharks

[ReaItors Are Liars]

09:44 AM on 10/10/2011

If u r underwater, walk away.

[MSROADKILL612]

11:36 AM on 10/10/2011

u think i am jesus - cool - send donations to PO box ...

[novictim]

08:18 PM on 10/09/2011

FOLKS! Forget about renting getting cheaper...this is a nonsense story. In no way will the govenment rent out these foreclosures. All such statements are just meant to scare landlords into "donating" to reelection funds.

It's all a shakedown.

Meanwhile, the economy won't recover until this foreclosure crisis is put to rest. All these nonsense plans to tinker with "refinance" ...great way to stretch out this crisis indefinitely.

We need to face reality...our home aren't worth half our mortgage price and the prices MUST fall ad WILL fall. A new deal/societal-financial restructuring must occur before we can move on.

[ReaItors Are Liars]

10:54 PM on 10/09/2011

Rents ARE in fact falling across the country.

[4eva]

12:05 PM on 10/10/2011

A Huge Housing Bargain ... But Not For You
http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain--but-not-for-you.html

[Raccoon1]

02:06 PM on 10/09/2011

Force the banks to re-negotiate terms. Banks are borrowing money at near zero percent. They've got some room to modify loans. Sure, the CEO's and shareholders won't make a ton of money, but if the mortgages go underwater, they'll make nothing.

[Patriot86]

11:58 AM on 10/09/2011

A job loss can cause anyone to be underwater.

[norkas]

09:44 AM on 10/09/2011

0 down or 10 10% and anyone is surprised this happened. Have any clue how banks closed there eyes and gave loans to those they knew for sure could not pay them off.

How people purchased a home that is now worth 40% - 50% less?

Banks are no longer interested in closing their eyes as before and loaning money on fixed appraisals and those who cannot for sure in their eyes make the payments.

Many people who have seen their homes worth much less then what they paid for it have chosen to walk away from it regardless of there credit rating risk.

The banks will need to write off another trillion plus and have not figured a way of compromising for those who cannot make their payments and that is a real problem and displays they do not have enough smart people working in the banking industry.

[dadw5boys]

09:58 AM on 10/09/2011

no one said Predatory Lenders had to be smart to defraud Americans.

[intolleft]

02:57 PM on 10/09/2011

Predatory Lender = blaming someone else for your irresponsibility.

[Patriot86]

12:00 PM on 10/09/2011

Oh bull shite... I don't care if you put down 20%,, you lose your job and don't find one in a timely fashion...you are cooked...the truth is that no one wants to lose a house ...and credit has little to do with it...you lose your job and you can't pay period...I know all you righties would like to blame those who are unemployed but really it could happen to anyone.

[intolleft]

02:58 PM on 10/09/2011

You should have two years worth of savings to cover just such a circumstance. If you don't, you shouldn't be buying a home.

[nappyman]

09:23 AM on 10/09/2011

Too bad I live in NY. This doesn't affect me. Unless i want to live an hour away from work.

[brandon20678]

06:41 PM on 10/08/2011

Simple: don't buy homes you can't afford. If you make 60k a year the most you should have for a loan is 150K.

[frank day]

07:02 PM on 10/08/2011

Not so simple really.

If you live in San Diego 150K will buy you nothing.

If you live in Rogers, Arkansas, 75K will buy you a nice home.

Location trumps all else.

[ReaItors Are Liars]

07:07 PM on 10/08/2011

Give it time. California has just entered it's price decline phase. Prices there have a long long way to fall.

Why pay grossly inflated prices when prices are falling? Buy later for 60% less.

[olddognewtrick]

02:39 PM on 10/10/2011

Actually. Seems very simple. If you live in San Diego...You Can't Afford A House!

[Bankerthieves]

05:18 PM on 10/09/2011

maybe the lenders have a responsibilty of checking people's income before approving a loan. Is the greedy bank who knownally package these worthless loan and sold them to su ckers any different than those who lied to beat the system

[Siebenstein]

03:28 AM on 10/11/2011

has also nothing to do with the current problem.

[Summertown]

01:35 PM on 10/08/2011

Odd how I was thinking about this morning after underwater mortgages was mentioned some where else. We are one of the few that is not underwater nor did we over pay. Our equity has not climbed much since we bought five years ago but its there.

Was it instinctual? Maybe since we also pulled out of the stock market before the crash. Could it also be that neither of us felt comfortable with a mortgage that was stratospheric? Definitely yes. Even during 9 months of unemployment the house was never at risk. And our mortgage is held with a regional bank so that even if things did begin to slide we are confident in our bank's desire to keep us in our home.

[OneEarthling]

03:02 PM on 10/08/2011

That's very nice for you. I am also a prime borrower, bought a home with a conventional mortgage, did not over pay but am still now underwater. It makes no difference to me because I am retired, can afford the fixed payment and will be here 'till death do us part.

In an identical purchase/finance I would be screwed if I needed to move for employment, refinance at a lower rate or otherwise liquidate the house. The falling values still are eating people alive through no fault of their own. This will not change for quite a long time and it is what is holding back growth. I know.

I am retired from the homebuilding/development business and have been through the up/down cycle many times. Homebuilding is a huge engine of the economy and is always the first to suffer in a down climate and last to recover on the upswing.

[Summertown]

03:46 PM on 10/08/2011

Having to move for employment has been addressed and it is a serious issue for those that have homes they either can't sell or sell for enough to pay off the mortgage. My husband is in commercial construction but with a difference, he travels for the job and I stay put. Another thing that has saved us where this place is concerned.

I watch these TV shows about purchasing homes, one couple and one child but it has to be over 2000 sq feet and has to have 4 bedrooms. Isn't this one of the things that got us in trouble in the first place? Then I reflect on the little bungalow I grew up in with 4 kids and two parents. It was a home, it kept us warm in Winter and cool in Summer. All 1300 sq ft of it.

[ReaItors Are Liars]

06:44 PM on 10/08/2011

"Our equity has not climbed much"

lol. You bought in 2006 and you think you have equity? You're deep underwater my friend.

[Summertown]

07:40 PM on 10/08/2011

Nope, we bought smart. In fact the value has climbed a few thousand.

We don't live in one of those areas that had the artificially inflated home prices. Which means we did not have the huge real estate decline. Plus we're on land.