23%+ of Homes Underwater

Editors Note: If anything shows the extent of appraisal fraud, it is the sheer number of homes that are under water. These figures while high, report only a fraction of the actual number of homes because of the way they are computed. If you take the asking price, reduce it by at least 4% (which is the actual sales price), reduce that by 6% (the average real estate brokerage commission) and reduce that by other selling expenses, you’ll end up with a much higher figure.

The divergence between the cost of renting a home and buying a home is a strong indicator of the real fair market value. When you add in the key component of housing values — median income — you can see that we are teetering on another downturn in home values. Those that are underwater are under “house arrest” being unable to sell their homes because they cannot afford to pay off the principal balance demanded from a servicer who has no idea of what is due on the principal because they are not allocating third party payments from credit enhancements and federal bailouts.

Short sales are hard to get although some people, like Edge Simonton in Houston are reporting better results lately. Strategic defaults are on the rise, thus increasing the number of homes that are in the pipeline for sale. The market already over-saturated with homes for sale has a hidden inventory of homes for sale that are not reported.


Mortgage Holders Owing More Than Homes Are Worth Rise to 23%

By Brian Louis

May 10 (Bloomberg) — More than a fifth of U.S. mortgage holders owed more than their homes were worth in the first quarter as repossessions climbed to a record, according to Zillow.com.

Twenty-three percent of owners of mortgaged homes were underwater during the period, up from 21 percent in the previous three months, the Seattle-based property data provider said today in a report. More than one in 1,000 homes were repossessed by lenders in March, the highest rate in Zillow data dating back to 2000.

Underwater homes are more likely to be lost to foreclosure because their owners have a harder time refinancing or selling when they fall behind on loan payments. U.S. home values dropped 3.8 percent in the first quarter from a year earlier, the 13th straight period of year-over-year declines, Zillow said.

“Having a lot of underwater homeowners will add to the downward pressure on house prices,” said Celia Chen, senior director at Moody’s Economy.com in West Chester, Pennsylvania. “We do expect that home prices will fall a bit more.”

Bank repossessions in the U.S. rose 35 percent in the first quarter from a year earlier to a record 257,944, according to RealtyTrac Inc., an Irvine, California-based company.

Sales of foreclosed properties by banks accounted for more than a fifth of all U.S. home sales in March, Zillow said. They made up 66 percent and 62 percent of transactions, respectively, in the metropolitan areas of Merced and Modesto in California.

About 32 percent of homes sold in the U.S. in March went for less than their sellers paid for them, Zillow said.

The closely held company uses data from public records going back to 1996. Its mortgage figures come from information filed with individual counties.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.

Last Updated: May 10, 2010 04:31 EDT

No Help in Sight, More Homeowners Walk Away

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

See the whole article in New York Times. Extensive discussion of the issue. It’s beginning to look like a parade. There is no question that without principal reduction, the bottom has yet to be reached in home values. Strategic Defaults are on the rise and may well dominate the housing market for years to come.

No Help in Sight, More Homeowners Walk Away

NY Times

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.
“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”

Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.

“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.”


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