Negative Equity at Epidemic Levels

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EDITOR’S NOTE: The first thing to remember is that the negative equity idea is based upon the idea that the mortgages and notes are valid instruments. The second thing to remember is that the way they figure the “value” is not the same as the way the closing agent figures out the proceeds of closing paid to the seller. So the situation is in reality far worse than reported because the media, controlled by the banks, doesn’t want to give people the idea that yes, they really did get screwed — all of them, and now all they have to show for it is a lower credit score and piles of debt.

5-10 Mark Hanson – (Effective) Negative Equity at Epidemic Levels – Estimates Greatly Underestimate Distress

May, 10 2011 | markmti | This week the monthly negative equity headlines made the rounds (CNBC story copied below) with Zillow reporting a sharp jump to 28.4% of all houses with mortgages presently underwater. But this does not scratch the surface of the extent to which homeowners are underwater in real life.

1) Remember, these stats rarely include second mortgages or firsts that were refi’d after the purchase where cash out was pulled and the loan amount was increased, as most negative equity estimates are based on original purchase price of the house itself. Zillow, quoted in the story below, is one that uses original purchase price.
2) With respect to negative equity as it relates to the housing market and repeat buyers — the much needed but missing ingredient to a magic housing fix — effective negative equity is far greater. This is because to rebuy a homeowner has to sell, which means paying off the first (and second) mortgages, paying a Realtor 6% and putting 10% to 20% down on the new purchase. When you lower the negative equity thresholds to real life, effective negative equity is epidemic and will keep the organic buyer — especially at the mid-to-high end — at bay for a generation.

Mark Hanson

Homeowners Drowning in Negative Equity

If you have no desire or need to sell your home, then falling home prices are just on paper and likely temporary, right? Depends on how you look at it.

Falling home prices put more borrowers in a negative equity position, that is owing more on their mortgage(s) than their homes are worth. We call that “underwater,” and for good reason, because for some borrowers that sense of drowning in debt has profound implications.

Today reported a new high in negative equity: 28.4 percent of single family homes with a mortgage (remember, 32 percent of all homeowners do not have a mortgage).

That’s a national average, but the numbers are far worse in some of the nation’s big metros. Atlanta, for example, has a 55.7 percent negative equity rate. Denver, 41 percent, Chicago nearly 46 percent. This is on top of all the foreclosure hot spots like Phoenix, where close to three quarters of all borrowers are underwater.

Why should we care if it’s all on paper?

“Higher rates of negative equity are creating a lot of latent vulnerability in the housing stock, where if the household then encounters some economic shock, like the loss of a job or divorce or death, then that household is much, much more likely to go into foreclosure,” notes Zillow’s Stan Humphries. “So it just means that higher rates of negative equity, we’re going to see elevated rates of foreclosure for the next two to three years.”

But higher rates of foreclosure put increasing pressure on home prices, causing them to fall further, which in turn puts even more borrowers underwater. One begets the other begets the other. Humphries thinks this is a bigger deal than the “walkaway” issue (or strategic default); that’s where borrowers see no chance of ever having equity in their homes, so they walk away rather than becoming permanent pseudo-renters, responsible for the high cost of the home’s upkeep but reaping no equity benefit.

“The best research that’s been done right now seems to suggest that negative equity impact on strategic defaults really kicks in at very high rates of value to loan ratio, so that means when people are more like 30-40 percent underwater does it start to create proactive behavior where they want to walk away from the mortgage. And even at those rates of loan to values, you’re still seeing strategic defaults be a relative…not a majority behavior,” says Humphries.

Well there are certainly plenty of large metro markets, as I cited previously, where negative equity is that high. And here’s a little more food for thought: What about mobility? As the economy improves, and we see those jobs numbers rise, as we did last Friday, we have to consider the fact that many people taking these jobs may be required to move for said jobs. Those same borrowers may not be able to take the loss on the home that’s required to sell it. What then?

What is the fate of the nation’s credit quality. It’s already tough enough to get a good mortgage when you have good credit. Home buyer confidence and demand are the only remedies right now for the housing/foreclosure crisis.

Sadly, we have neither.

16 Responses

  1. carie,

    Fraud — and Fraud upon the Court. And, this is not without damages — homeowner was denied the ability to negotiate with the actual current creditor (who likely purchased collection rights for pennies on the dollar) to rectify the situation — in violation of HAMP – and which resulted in a false foreclosure action — which was also caused by a false origination of a false mortgage loan.

    But — courts have to start opening up discovery. Normally discovery is shut down before anyone can even cry — FOUL!!! .

  2. EXACTLY! Bill and Anderson and Rachel are so seeming concerned about the rights of the people—why aren’t they digging deep and screaming about this? I guess we have to make it bloody—then they will pay attention! “If it bleeds, it leads…”

    Well, this foreclosure assault is definitely bleeding the life out of people…

  3. Dylan Ratigan

    He knows what’s going on..

    The big shots at the networks keep the reigns on just like they did on the 60 minutes piece.

    Notice you didn’t hear much about of MERS.

    Where is Bill O’ or Rachel M or Anderson C on this?

    MERS is the head of the Snake…
    cut off the head and the body will DIE.

  4. Carie,

    That’s an up hill battle… it seems that Judges look the other way when it comes to foreclosure, and in many case’s do NOT enforce the Laws that are already on the books.

    However the tide is turning but not fast enough. Everyday homeowners are fighting back… and in many case’s winning.

    In my opinion it is because of community websites and blogs like Livinglies and Foreclosure Hamlet etc. That we have seen any progress.

    The banks are very powerful…. and there Minions will stop at Nothing.

    We have seen them commit Fraud, Forgery, Fabricate Phony Documents, and perjury… all with complete impunity!

    Sheila Bair of the FDIC on 60 minutes watched robo signers admit that they forged thousands of Legal Documents…

    Yet she was unfazed.. one would think that a Bank Regulator would regulate Fraud being perpetrated right under her nose.

    Just my 2 cents..

  5. I wonder if Dylan Ratigan even knows or understands that there ARE NO LOANS?!?!

  6. Question:

    If the debt collector/servicer threatens foreclosure and then forecloses on homeowner, and then it is PROVEN that the “debt” owed was in fact FALSE DEFAULT DEBT with NO CONVEYANCE, what recourse does the homeowner have towards this debt collector that kicked him to the curb?

  7. A MUST SEE!

    Today Watch the Dylan Ratigan Show on msnbc
    1:00 PST

    Today’s segment is on mortgage servicing whistleblowers.

  8. A Must Read!

    FL Assistant AG Caught with Hand in the Cookie Jar.

    The attorney general’s office has fired Erin Cullaro, an assistant Florida attorney general reprimanded last year for moonlighting for a “foreclosure mill.”

    The termination follows a second reprimand in March from Gov. Rick Scott’s office, which questioned variations of her signature on legal documents.

    The signature that was used to notarize affidavits of “reasonable attorney fees” is not the same signature she was commissioned to use, according to a letter from Scott’s office.

    The April termination came from the office of Attorney General Pam Bondi. Jenn Meale, communications director for Bondi’s office, said “when the management team reviewed its personnel, they decided to terminate (Cullaro’s) employment.” Meale offered no further explanation.

    Ricardo A. Roig, a Tampa lawyer who represents Cullaro, said “there is no evidence of wrongdoing.”

    “There’s no question Erin complied with the spirit and the letter of the law,” Roig said. “There are differences in her signatures, but a lot of people change the way they sign their name.”

    Cullaro, who worked for the attorney general’s Economic Crimes Division in Tampa, is a former employee of Tampa-based Florida Default Law Group and did notary work for the office after she was hired by the state.

    Florida Default Law Group, which handles foreclosure for banks, is under investigation for what the attorney general’s office calls possible fabricated and misleading documents in foreclosure cases.

    Cullaro was given permission by the attorney general’s office in April 2008 for dual employment, allowing her to notarize law firm documents for 15 minutes three days a week.

    But according to the written reprimand, Cullaro failed to renew the application for the new fiscal year, “which would have alerted the (attorney general’s office) to your continued outside employment and accurately reflected the time commitment involved.”

    In addition, the reprimand states, “your continued dual employment created an appearance of impropriety” because the attorney general’s office was looking into the practices of foreclosure law firms.

    Cullaro’s notary signature varies widely from document to document, and she is accused of signing off on documents while on business trips for the attorney general’s office.

    Foreclosure defense attorneys have questioned in court documents whether Cullaro signed all the documents herself. Her signatures ranged from a full cursive signature to a squiggly “E,” according to court documents reviewed by the Tribune. When she signed the reprimand letter, she used the “E.”

  9. Low hanging fruit – get a phone call or piece of paper in the mail saying pay me for your defaulted debt. Don’t be a low hanging fruit,

    Debt collectors are having a tougher time in court collecting on delinquent accounts. Reason: they can’t prove their cases.

  10. Livinglies, deception and fraud. Fookers will do anything to cheat people out of ABS/MBS loans.

  11. Another Reason to find out who really owns any loan you have and NOT to just fork over money because you got a piece of paper in the mail or some phone calls that say we are a collection company – pay me now. Where’s my middle finger!!!!!!!!!!!!!

  12. THANK GOD the AG’s handled this one. Really important NOT, fook’in idiots.

  13. In the meantime, THE CEO and Board of Rip-offs(directors) make big bucks in salaries and bonus’s:

  14. I’ll give you an education in finances:

    1. don’t ever borrow.
    2. use money to make more money.
    3. don’t ever borrow.
    4. save 10% of your income – pay yourself first.
    5. don’t ever borrow.
    6. keep credit as a second cushion.
    7. don’t ever borrow, especially from a bank with their compound interest.

  15. They do not want principle reduction, they want to keep the mortgage notes at their fraudulent levels. Why – to keep the MBS market alive, to keep you in lifetime debt, and to cover up the fraud.

  16. […] Source: Livinglies’s Weblog […]

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