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03-04-2009, 06:01 PM
This is one scary, but yet gut checking article. In my opinion this housing correction isn't even half way over yet. Obama can slow the process, but the market can't be stopped once it makes a decision.
March 4 (Bloomberg) -- More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.
An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.
“We have way too much supply and not enough demand,” Sam Khater, senior economist for First American, said in an interview. “People aren’t going to purchase a home as long as prices keep falling, and someone who is worried about their job isn’t going to purchase a home either.”
Prices in 20 U.S. cities fell 18.5 percent in December from a year earlier, the fastest drop on record, according to the S&P/Case-Shiller index. Sales of previously owned homes, which account for about 90 percent of the market, fell in January to the lowest since 1997, and new-home purchases plunged to the lowest since records began in 1963, the National Association of Realtors and Commerce Department said.
The total value of residential properties in the U.S. fell to $19.1 trillion by the end of 2008, down from $21.5 trillion a year earlier, First American said. California lost more than $1.2 trillion in value last year, accounting for roughly half of the national decline in housing values.
California Leads
U.S. foreclosure filings exceeded 250,000 for the 10th straight month in January, RealtyTrac Inc. reported, and payrolls plunged by 598,000, pushing the unemployment rate to the highest since 1992, according to the Labor Department.
An average of 230,000 borrowers a month slid to negative equity in the fourth quarter of 2008, First American said. California led with 43,000, followed by Texas with 16,000, Nevada with 15,000, and Florida and Virginia each with 14,000. New negative equity borrowers may rise to 250,000 a month in the first half of the year if prices continue falling, Khater said.
President Barack Obama has proposed a $275 billion plan intended to help as many as 9 million troubled borrowers refinance or restructure their loans. About $75 billion would be used to rescue homeowners by agreeing to pay lenders for altering troubled mortgages while reducing borrowers’ interest rates as low as 2 percent.
New Guidelines
The initiative would require applicants for loan modifications to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to documents released by the U.S. Treasury in Washington today. The second, larger part of the plan relies on government-run Fannie Mae and Freddie Mac to refinance loans.
Obama also supports revised U.S. bankruptcy rules that would let judges reduce mortgages on primary residences to fair-market value, if borrowers pay their debts under a court-ordered plan.
At least 7.6 million mortgage holders won’t qualify because they are underwater by more than the 5 percent threshold allowed in Obama’s proposals, according to an estimate by online valuation service Zillow.com.
“None of this is enough for people who are so upside down that they won’t have positive equity,” Khater said. More than 2.2 million U.S. borrowers have “severe negative equity,” or loans worth 125 percent or more of the property’s value.
Broad Geography
The geographical distribution of underwater mortgages is broadening beyond states in the U.S. West and Florida, where rapid price appreciation was fueled by subprime lending, to areas in the South and Midwest, Khater said. Cities such as Atlanta, Chicago, Dallas and Cleveland will have an increasing share of homes with negative equity if home values drop, he said.
California had the most underwater borrowers in the fourth quarter with 1.9 million, followed by Florida with 1.3 million, Texas with 497,000, Michigan with 459,000 and Ohio with 435,000, First American said.
Nevada had the highest share, at 55 percent. Michigan was second at 40 percent, followed by Arizona at 32 percent and Florida and California at 30 percent, said First American.
New York had the lowest share of underwater mortgages at 4.7 percent. Connecticut was at 9.1 percent and New Jersey was at 9.7 percent.
First American compiles its negative equity report from almost 42 million properties with mortgages and covers single- family homes, cooperatives, condominiums, town homes and attached properties up to four units. The estimates account for 85 percent of all mortgages in the U.S. and the data includes homes priced from $70,000 to $1.25 million.
March 4 (Bloomberg) -- More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.
An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.
“We have way too much supply and not enough demand,” Sam Khater, senior economist for First American, said in an interview. “People aren’t going to purchase a home as long as prices keep falling, and someone who is worried about their job isn’t going to purchase a home either.”
Prices in 20 U.S. cities fell 18.5 percent in December from a year earlier, the fastest drop on record, according to the S&P/Case-Shiller index. Sales of previously owned homes, which account for about 90 percent of the market, fell in January to the lowest since 1997, and new-home purchases plunged to the lowest since records began in 1963, the National Association of Realtors and Commerce Department said.
The total value of residential properties in the U.S. fell to $19.1 trillion by the end of 2008, down from $21.5 trillion a year earlier, First American said. California lost more than $1.2 trillion in value last year, accounting for roughly half of the national decline in housing values.
California Leads
U.S. foreclosure filings exceeded 250,000 for the 10th straight month in January, RealtyTrac Inc. reported, and payrolls plunged by 598,000, pushing the unemployment rate to the highest since 1992, according to the Labor Department.
An average of 230,000 borrowers a month slid to negative equity in the fourth quarter of 2008, First American said. California led with 43,000, followed by Texas with 16,000, Nevada with 15,000, and Florida and Virginia each with 14,000. New negative equity borrowers may rise to 250,000 a month in the first half of the year if prices continue falling, Khater said.
President Barack Obama has proposed a $275 billion plan intended to help as many as 9 million troubled borrowers refinance or restructure their loans. About $75 billion would be used to rescue homeowners by agreeing to pay lenders for altering troubled mortgages while reducing borrowers’ interest rates as low as 2 percent.
New Guidelines
The initiative would require applicants for loan modifications to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to documents released by the U.S. Treasury in Washington today. The second, larger part of the plan relies on government-run Fannie Mae and Freddie Mac to refinance loans.
Obama also supports revised U.S. bankruptcy rules that would let judges reduce mortgages on primary residences to fair-market value, if borrowers pay their debts under a court-ordered plan.
At least 7.6 million mortgage holders won’t qualify because they are underwater by more than the 5 percent threshold allowed in Obama’s proposals, according to an estimate by online valuation service Zillow.com.
“None of this is enough for people who are so upside down that they won’t have positive equity,” Khater said. More than 2.2 million U.S. borrowers have “severe negative equity,” or loans worth 125 percent or more of the property’s value.
Broad Geography
The geographical distribution of underwater mortgages is broadening beyond states in the U.S. West and Florida, where rapid price appreciation was fueled by subprime lending, to areas in the South and Midwest, Khater said. Cities such as Atlanta, Chicago, Dallas and Cleveland will have an increasing share of homes with negative equity if home values drop, he said.
California had the most underwater borrowers in the fourth quarter with 1.9 million, followed by Florida with 1.3 million, Texas with 497,000, Michigan with 459,000 and Ohio with 435,000, First American said.
Nevada had the highest share, at 55 percent. Michigan was second at 40 percent, followed by Arizona at 32 percent and Florida and California at 30 percent, said First American.
New York had the lowest share of underwater mortgages at 4.7 percent. Connecticut was at 9.1 percent and New Jersey was at 9.7 percent.
First American compiles its negative equity report from almost 42 million properties with mortgages and covers single- family homes, cooperatives, condominiums, town homes and attached properties up to four units. The estimates account for 85 percent of all mortgages in the U.S. and the data includes homes priced from $70,000 to $1.25 million.