In the wake of the housing collapse of the past few years, a large number of homeowners find themselves holding underwater mortgages, owing more than a home is worth. It is estimated that more than one-fifth of houses in the United States are underwater.
Defeating the purpose
Part of the idea behind buying a home is that it’s an investment. Returns on real estate aren’t that great in the long run, but it’s the most common investment vehicle.
When housing markets collapse or go through sustained periods of catastrophically bad conditions, it defeats the purpose, investment-wise, when a high number of people wind up owing more than their homes are worth due to declining values. Usually called “underwater” but also referred to as negative equity, an unfortunately large number of homeowners have found themselves in that predicament.
One in five underwater
In the second quarter of 2011, according to the New York Times, market analysis firm CoreLogic estimated that 10.9 million homeowners owed more on the the remainder of their mortgages than their homes were worth on the market. By the third quarter, it had receded slightly to 10.7 million, though the reduction was largely due to foreclosures.
CoreLogic has just released its analysis of the fourth quarter of calendar 2011, according to Time magazine. CoreLogic found the number of homeowners holding negative equity had increased by 3.7 percent, to 11.1 million homes being underwater. That is roughly 22.8 percent of the population, just more than one in five people.
States hit hardest by the real estate downturn had the highest proportions of underwater homeowners. An estimated 61 percent of homes in Nevada are underwater, along with 48 percent in Arizona and 41 percent in Florida. In November, the average rate discounting the worst five states, which included Georgia and California, was 17.6 percent, according to the New York Times.
Government trying to intervene
There have been attempts by the federal government to help with underwater mortgages, though the Home Affordable Modification Program was a failure.
According to Reuters, the Federal Housing Finance Agency expanded a similar program in October, 2011, called the Home Affordable Refinance Program. Previously, only homeowners whose homes were worth less than 125 percent of the market value were eligible for the program, but the cap was removed.
Eligible homeowners, according to USA Today, have to be current on payments, hold 20 percent or less equity in their homes and their loans must be insured or owned by either Fannie Mae or Freddie Mac. It’s expected that the program could secure refinancing for up to 1 million homeowners. The program was underutilized prior to October; it had been projected to be able to assist up to 5 million people when it was launched in 2009 but only 895,000 people had secured refinancing through HARP.