About half of U.S. mortgages seen underwater by 2011

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February 21, 2010 at 8:20 AM #17089

Arraya
Participant

http://www.reuters.com/article/idUSTRE5745JP20090805
NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.

“We project the next phase of the housing decline will have a far greater impact on prime borrowers,” Deutsche analysts Karen Weaver and Ying Shen said in the report.

Of prime conforming loans, 41 percent will be “underwater” by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties’ value, up from 29 percent, it said.

“The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding,” the analysts said. Prime jumbo loans make up 13 percent of the total market.

Deutsche’s dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.

Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.

Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were “affordability products” originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,

Of option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.

Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

“For many, the home has morphed from piggy bank to albatross,” the analysts said.

February 21, 2010 at 9:09 AM #515890

4plexowner
Participant

“option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011”

[img_assist|nid=12621|title=Option ARM resets a CA issue|desc=|link=node|align=left|width=400|height=350]

let’s see, Option ARM teaser period ends over the next 3 years, fully amortized mortgage is likely to be more than the cost of renting equivalent housing, and 89% of them are underwater – am I missing anything?

come on now, somebody jump in and tell us how Option ARM resets isn’t going to be an issue (it always makes me laugh …)

February 21, 2010 at 9:09 AM #516032

4plexowner
Participant

“option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011”

[img_assist|nid=12621|title=Option ARM resets a CA issue|desc=|link=node|align=left|width=400|height=350]

let’s see, Option ARM teaser period ends over the next 3 years, fully amortized mortgage is likely to be more than the cost of renting equivalent housing, and 89% of them are underwater – am I missing anything?

come on now, somebody jump in and tell us how Option ARM resets isn’t going to be an issue (it always makes me laugh …)

February 21, 2010 at 9:09 AM #516459

4plexowner
Participant

“option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011”

[img_assist|nid=12621|title=Option ARM resets a CA issue|desc=|link=node|align=left|width=400|height=350]

let’s see, Option ARM teaser period ends over the next 3 years, fully amortized mortgage is likely to be more than the cost of renting equivalent housing, and 89% of them are underwater – am I missing anything?

come on now, somebody jump in and tell us how Option ARM resets isn’t going to be an issue (it always makes me laugh …)

February 21, 2010 at 9:09 AM #516553

4plexowner
Participant

“option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011”

[img_assist|nid=12621|title=Option ARM resets a CA issue|desc=|link=node|align=left|width=400|height=350]

let’s see, Option ARM teaser period ends over the next 3 years, fully amortized mortgage is likely to be more than the cost of renting equivalent housing, and 89% of them are underwater – am I missing anything?

come on now, somebody jump in and tell us how Option ARM resets isn’t going to be an issue (it always makes me laugh …)

February 21, 2010 at 9:09 AM #516804

4plexowner
Participant

“option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011”

[img_assist|nid=12621|title=Option ARM resets a CA issue|desc=|link=node|align=left|width=400|height=350]

let’s see, Option ARM teaser period ends over the next 3 years, fully amortized mortgage is likely to be more than the cost of renting equivalent housing, and 89% of them are underwater – am I missing anything?

come on now, somebody jump in and tell us how Option ARM resets isn’t going to be an issue (it always makes me laugh …)

February 21, 2010 at 10:06 AM #515944

SD Realtor
Participant

Oh it will be an issue.

It also makes me laugh when I think about how much it will cost us taxpayers.

That is always kind of funny do don’t you think? I think it is also funny how people actually believe the govt won’t have a massive effort to bail these people out, or the investors that hold the paper, of the lenders themselves.

It is also even funnier that people think they will be able to get fantastic benefits out of this when the precendent has already been established as to how the govt will deal with the issue.

That does always make me laugh. Call me a cynic but I base the future on what has happened in the recent past.

February 21, 2010 at 10:06 AM #516087

SD Realtor
Participant

Oh it will be an issue.

It also makes me laugh when I think about how much it will cost us taxpayers.

That is always kind of funny do don’t you think? I think it is also funny how people actually believe the govt won’t have a massive effort to bail these people out, or the investors that hold the paper, of the lenders themselves.

It is also even funnier that people think they will be able to get fantastic benefits out of this when the precendent has already been established as to how the govt will deal with the issue.

That does always make me laugh. Call me a cynic but I base the future on what has happened in the recent past.

February 21, 2010 at 10:06 AM #516514

SD Realtor
Participant

Oh it will be an issue.

It also makes me laugh when I think about how much it will cost us taxpayers.

That is always kind of funny do don’t you think? I think it is also funny how people actually believe the govt won’t have a massive effort to bail these people out, or the investors that hold the paper, of the lenders themselves.

It is also even funnier that people think they will be able to get fantastic benefits out of this when the precendent has already been established as to how the govt will deal with the issue.

That does always make me laugh. Call me a cynic but I base the future on what has happened in the recent past.

February 21, 2010 at 10:06 AM #516607

SD Realtor
Participant

Oh it will be an issue.

It also makes me laugh when I think about how much it will cost us taxpayers.

That is always kind of funny do don’t you think? I think it is also funny how people actually believe the govt won’t have a massive effort to bail these people out, or the investors that hold the paper, of the lenders themselves.

It is also even funnier that people think they will be able to get fantastic benefits out of this when the precendent has already been established as to how the govt will deal with the issue.

That does always make me laugh. Call me a cynic but I base the future on what has happened in the recent past.

February 21, 2010 at 10:06 AM #516858

SD Realtor
Participant

Oh it will be an issue.

It also makes me laugh when I think about how much it will cost us taxpayers.

That is always kind of funny do don’t you think? I think it is also funny how people actually believe the govt won’t have a massive effort to bail these people out, or the investors that hold the paper, of the lenders themselves.

It is also even funnier that people think they will be able to get fantastic benefits out of this when the precendent has already been established as to how the govt will deal with the issue.

That does always make me laugh. Call me a cynic but I base the future on what has happened in the recent past.

February 21, 2010 at 10:31 AM #515953

an
Participant

The tsunami will come, it has to. I’m waiting to get my house on a quarter acre lot in Solana Beach for 500k.

February 21, 2010 at 10:31 AM #516097

an
Participant

The tsunami will come, it has to. I’m waiting to get my house on a quarter acre lot in Solana Beach for 500k.

February 21, 2010 at 10:31 AM #516525

an
Participant

The tsunami will come, it has to. I’m waiting to get my house on a quarter acre lot in Solana Beach for 500k.

February 21, 2010 at 10:31 AM #516617

an
Participant

The tsunami will come, it has to. I’m waiting to get my house on a quarter acre lot in Solana Beach for 500k.
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