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AP Photo/Ben Margot
Maria Martinez stands in front of her home Oct. 22 in Stockton, Calif. Martinez is three months behind on her mortgage even after receiving a loan modification earlier this year. California and five other states are where nearly 60 percent of homeowners
AP Real Estate Writer
Published: October 31, 2008
Here’s a shocker: almost half of Nevada homeowners with a mortgage owe more to the bank than their homes are worth.
Here’s another: If you add in the homeowners like them in California, Arizona, Florida, Georgia and Michigan, together they account for nearly 60 percent of all homeowners who are “underwater” on their mortgages.
Nationwide, almost one out of every five homeowners with a mortgage owes more to their lender than their properties are worth. But if you subtract those states, the rate drops to about one in 10, according to a report released Friday by First American CoreLogic.
The new data underscore the staggering scope of the U.S. housing recession, but also the challenges that government officials face in designing a massive new program to help homeowners avoid foreclosure, with layoffs soaring and the economy sinking.
Some experts predict the problem will get much worse.
Nationally, home prices are already down about 20 percent from their peak in mid-2006. By the time the housing market hits bottom, prices may be down 40 percent from the top, leaving 40 percent of homeowners underwater, according to Nouriel Roubini, economics professor at New York University.
“There is a huge incentive to walk away from your mortgage,“ said Roubini, who has attracted attention for his gloomy - and accurate - predictions of the U.S. financial market meltdown. He gave no forecast for when the real estate market would bottom out.
Another pessimistic analyst, Desmond Lachman of the American Enterprise Institute, said that “unless there’s government intervention on a big scale…we’re really not going to bottom.“
The problem is much worse in far-flung suburban neighborhoods where builders flooded the market with new homes and buyers put down small, or no, down payments, said Mark Fleming, First American CoreLogic’s chief economist. In desirable urban neighborhoods and close-in suburbs, “a lot of people bought their homes years ago. It’s much more difficult for them to be in a negative equity situation.“ Fleming said.
Rising mortgage rates are also making matters worse for prospective borrowers. The rate on a 30-year, fixed-rate mortgage averaged 6.46 percent this week, up sharply from 6.04 percent last week, Freddie Mac reported Thursday.
Higher rates coupled with lower home values means fewer people can tap their home equity. The percentage of U.S. homeowners who pulled cash out of their homes remained at a four-year low in the third quarter, Freddie Mac said.
While some underwater borrowers certainly will lose their homes to foreclosure absent a massive - and successful - government refinancing plan, many will continue to make their payments and wait for values to recover. And of course roughly 30 percent of Americans own their homes outright.
Still, it remained unclear whether the government would be able to do much for many borrowers in trouble, especially given the amount of time to start up a new program.
“Certainly it can’t hurt,“ Bernard Baumohl, chief economist at the Economic Outlook Group in New Jersey. “How much it’s going to help is an open question.“
On Thursday, White House press secretary Dana Perino tried to dispel reports that the Bush administration is near agreement on a plan to help about 3 million homeowners avoid foreclosure. Perino said several different ideas are on the table, and that no announcement is imminent.
The plan, widely expected to be run by the Federal Deposit Insurance Corp., would be the most aggressive effort yet to limit damage from the U.S. housing recession.
Despite all the pessimism, even some bearish analysts see modest signs of encouragement. Home sales have stabilized this fall as bottom-fishing buyers snapped up bargain properties in places like Las Vegas and Southern California. New foreclosures, currently flooding the market, are likely to taper off by the middle of next year, said UBS mortgage securities analyst Thomas Zimmerman.
“There may be some turning points not that far away,“ Zimmerman said. “The really severe part of this collapse in the housing market may be behind us.“
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Associated Press Writers Jennifer Loven, Martin Crutsinger and Adrian Sainz contributed to this report.
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Reader Reactions
imprimis, I didn’t mean to say that you are less compassionate than I am in general—obviously, since you’ve volunteered at a homeless shelter, you do have concern for others. I only mean that in this situation, I have seen and heard so many gut-wrenching stories that I think I do feel more compassion than you do. If you read your first couple of posts, you can probably see why I think that; for instance, the statement “no sympathy” in your first post.
I don’t know what the answer is, but my heart just breaks to know that so many decent, hardworking people are ending up losing everything they have. Unfortunately, they just get lumped in with the people who bought McMansions to impress their friends, or who figured they could make a fortune flipping houses. No matter what the real story, they all get called “greedy” or “stupid”. Some of them deserve it, but a lot of them don’t.
crispy daisy - Based only on what’s written below, saying that “I am more compassionate than you” is certainly a very judgmental statement, and I mean that in a “judge not, that you be not judged” way. You have no idea whether or how compassionate I am, or how much time or money I give to those less fortunate than me.
We simply disagree (and you say yourself that the relative numbers are only your opinion) on how many people are impacted by the “mortgage crisis” and why.
We probably disagree (although I’ll admit I’m no judge) on the solution. My solution doesn’t include forcibly taking money from one group of people, shoving 2/3 of it into the administrative costs of Government, and giving the other 1/3 to whoever the Government likes, whether they need it or not.
I believe in helping your neighbor. I suggest the Salvation Army (they’re very good and they don’t take much in overhead), in Hunters for the Hungry, Gleaning for the World, and Habitat for Humanity, where I’ve spent many a sweaty hour.
If we spent a third of the money donating to these and other charities that we currently throw down the Federal sinkhole, we wouldn’t have a problem.
Imprimis, who said these people aren’t looking for jobs? My husband has an excellent resume and impressive experience, but it still took him 11 months to find a job after the company he worked for suddenly shut down. And a lot of the people who end up in financial distress DO have jobs, but don’t make enough money to cover the rapidly rising cost of living or unexpected crippling expenses.
The homeless shelter I’m talking about is for families—at least one parent, but often two, and at least one child—who have lost their homes due to devastating financial setbacks. Some of the adults have jobs, and the ones who don’t are trying to find jobs as a requirement of staying in the shelter. There’s a long waiting list to get into the shelter.
I know that a lot of people brought their financial problems on themselves. I think the number of people who are in trouble despite working hard and trying to do the right things, though, is much bigger than you assume.
It’s easy to say that people in this situation deserve what happens to them (although I don’t know how a child can ever deserve to end up homeless). I know from trying to talk to people like you that I’m not going to make you any more compassionate. You certainly aren’t going to make me less so.
crispy daisy - I don’t disagree that the scenarios that you lay out don’t happen; I know they do.
But I think they are a tiny proportion of the people that the government is proposing to bail out.
I’ve been jobless and insurance-less myself, I know what it’s like. I was too busy looking for a job (looking for a job is a full-time job in itself) to worry about getting government help.
And your homeless shelter must be different from ours. I’ve helped out, served food, in homeless shelters, and I can tell you I didn’t see many (any) families in there because of medical bills. I saw a LOT of people in there because of addictions, alternative lifestyles, and mental problems. Sad, and needing help, but not there because of “the economy”.
I guess maybe we look at the same situation and see completely different things. It’s why people fight.
imprimis, I’m not worrying about the value of my house, either, because I don’t have to sell it, but there are a lot of people who aren’t that fortunate. People get into dire financial straits for all kinds of reasons that are beyond their control: job layoffs, massive medical bills due to major illness (one of the leading causes of homelessness), wages too low to keep up with the increasing cost of living, small business owners who have lost their businesses—there’s a long list.
You and I are lucky that we can wait out the terrible real estate and financial markets, but there are millions of people who don’t have that luxury, through no fault of their own.
Imagine what it must be like to be a parent who is looking at his or her family losing their home because of a job loss or some other unfortunate circumstance. It’s hard to think of too many things that would be much worse.
My husband and I adopted a dog who was at the Humane Shelter because her family lost their home when the father got cancer. He was unable to work, and the medical bills wiped them out. The husband, wife and two children were shuttling between relatives’ houses because they couldn’t even afford to rent an apartment.
I have a friend who runs a homeless shelter in a town of about 5000 people. At any given time, about 60% of the families in the shelter are there because of medical bills. There are a lot of sad reasons that people lose their homes; unfortunately, you’re not the only person who can’t muster any sympathy for them.
I don’t disagree with what you say, but that situation shouldn’t put someone in foreclosure trouble.
If they had taken on a reasonable payment with no “betting on the come” ARMs, they they still have a reasonable payment, they just keep making it and wait for the market to come back. Don’t worry about what the house is “worth”.
It’d be like me worrying about the value of my 401K over the last few months. I just don’t look at it; I know it’s down in the dumps, but I just keep paying into it (buying stocks and bonds very cheaply this month) and wait for the market to get better rather than panicking and selling out.
Of course, if I were hoping to retire, and convert my 401K to an income annuity THIS YEAR, I’d be hurting.
Or if I NEEDED for some reason to sell my house RIGHT now, I’d be hurting.
But there’s only a very small percentage of people in that situation. The vast majority are those who made a bad bet, bit off way too much, and are having to take the hit.
And I’m really not in the mood to help them out, unless they’re in the mood to get me back some of the money I spent on Evergreen Energy (EEE) that I bought at $9.10 a share last year that’s been trading at less than $.36 today. Think there’s a chance I can get a government bailout to lower the impact of MY bad bet?
it seems like they are trying to shift the blame to the people now to try to save the banks and mortage lenders face. yes these people made a bad decision, however the people that lent them the money are the real bad people not the ones that just wanted to own a home. i remember when i was first looking for a home, i was constantly being bombarded by lenders about getting into that home NOW, just sign..i got you this great price with you paying interest only for 5 years, but then it would jump Dramatically in what i owed every month. thankfully i did the smart thing and walked away even though i wanted it more than anything, but some people are fooled by the smooth talkers and made to believe they can do it by those people when they can’t. just like car sales people there is never a set price on a car they just play games trying to get you to pay more than you should.
Imprimis, it’s not necessarily that cut and dried. A lot of people got mortgages that may have been affordable and reasonable at the time, but the dramatic slowdown in the housing market means that their houses are worth much less than when they got their mortgages. Those people may have followed your rules at they time, but there’s nothing they can do about the horrible real estate market that gutted their homes’ values.
It’s true that many people find themselves in this situation because they made bad decisions or were too quick to believe mortgage brokers who were just out for their commissions. Many others, though, did everything right and have still ended up in trouble.
For 100 years, the rules were:
Never take on a mortgage that is more than 2.5 times your gross annual income.
Never take on a mortgage where the payments are more than 1/3 of your net income monthly.
But in the last few years, the rule has been:
Take on a massive mortgage that is 6 times your annual income, but sign a deal where you pay “interest only” for three years to lower the payments. Then, before the three years is up, “flip” the house (like they do on TV), selling it at a huge profit in the never-ending housing boom, and do it again.
Problem is, these (silly? greedy?) people rolled their dice one too many times, and got caught in a flat housing market.
Now they’re letting out a sucker’s holler for The Guvment to bail them out.
No sympathy. The rules haven’t changed. Follow them and you won’t get burnt, at least not that way.
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