Recovery? 4 Million Homeowners Still Underwater

Townhall.com ^ | December 5, 2014 | Mike Shedlock

[Kaslin]

In spite of a sustained rally in home prices, the October Black Knight Financial Services Mortgage Monitor shows Four million borrowers currently underwater.

Highlights

• Black Knight found that even though underwater mortgages are now less than 8% of all mortgages, there are still roughly 4 million borrowers in negative equity positions, who are, on average, $39,000 underwater.
• Underwater borrowers, representing nearly $800 billion in unpaid balances and $157 billion in negative equity, are 10X more likely to be delinquent than those with positive equity.
• Underwater borrowers exhibit a 40% delinquency rate, as compared to just 4% for borrowers with equity
• For those with combined LTVs of 150% or greater, more than 3 out of every four (77%) are delinquent
• There are approximately 1.3 million underwater GSE-backed mortgages representing an aggregate $39 billion in negative equity; of these, 365K are delinquent
• Much-discussed principal reductions on delinquent underwater borrowers would require up to $89 billion in write-downs; the GSE share alone would require up to $18 billion
• Black Knight found some relaxation in credit requirements for refinance originations (though these are still high by historical standards)
• Weighted average credit scores for GSE refinances have come down to 742 from a high of 766 in late 2011, while credit requirements on GSE purchase mortgages have remained tight since 2009
• GNMA backed originations have also seen some relaxation in refi credit requirements, with weighted average credit scores down from 727 at the end of 2012 to 701 (which is still significantly higher than 2005's average of 628)
• Looking at the refi market as a whole, Black Knight found that borrowers with 740+ credit scores make up 55% of 2014 refi market, as compared to just 29% in 2005

Sustained Improvement in Negative Equity




Over the past two and a half years, there has been a sustained and continual improvement in negative equity, from 33.5 percent of borrowers being underwater in January 2012 to less than eight percent today

Only 1.2 percent of active mortgages have current CLTVs of 150 percent or higher, down from 9.5 percent in January of 2012 (the bottom of the market in terms of national home prices).

Delinquencies by Bucket



While the overall share of underwater mortgages continues to decline, delinquency rates are increasing among the remaining negative equity mortgages.

For the severely underwater – 150 percent or higher current CLTVs – over three out of every four borrowers (77 percent) are delinquent.

[stephenjohnbanker]

” .Underwater borrowers, representing nearly $800 billion in unpaid balances and $157 billion in negative equity, are 10X more likely to be delinquent than those with positive equity.”

My.......how strange!

: )

[Eric Pode of Croydon]

It's sad that they are underwater, but I'm no more sorry for them than I am for people who lost money in gold (it took me 20 years to break even on those maple leafs I bought back in the early 80s) or in the markets.

There was never a guarantee that house prices would go up forever.

[grania]

I suspect the number who are underwater in reality is greater than that. Many people have had to put off necessary repairs, or had them done poorly. If an owner has repairs in an amount that would put them underwater, they can never recover equity from that home.

[JRandomFreeper]

That does make me appreciate having a paid off house, and only having to come up with the money the shakedown/protection racket government wants every year.

/johnny

[Kaslin]

Feels good doesn’t it not having to worry about the mortgage

[JRandomFreeper]

Especially at my youthful age. I can spend my 50s and 60s putting money toward wimmen and liquor, and not a house payment.

/johnny

[Psalm 73]

"There was never a guarantee that house prices would go up forever."

That was my mind-set from the get-go, a house is a place to live - and I bought six months before the collapse.
I'm roughly even after seven years, but as long as I don't sell it, I haven't lost a dime.

[morphing libertarian]

At least it’s going for good purposes.

[morphing libertarian]

I think houses may go up forever, but the questions is how much, how long can you wait, and don’t expect a straight line.

We bought a condo in O-side CA. looking at water. Prices were high and proceeded to go down. Now about 100,000 equity (again).

We bought where we could afford the payment and where we wanted to live throughout our retirement. Don’t like when we were upside down, but willing to ride it out in the long term.

[woodbutcher1963]

Exactly, boo friggin hoo!

I have owned many stocks over the last 34 of investing. I have made money on some and lost on some. Sometimes I wish I still owned the ones I sold. For example, I owned Panera Bread at $15/share. I sold it at about a break even a year later. It currently trades at $163.

I also owned Chucky Cheese. It went bankrupt. Real estate is an investment. Over a 30 year period it goes up. However, it typically goes up and down in 7-10 year cycles. These investors bought the top of the cycle. They made a bad investment.

[IYAS9YAS]

My.......how strange!

I'm in the underwater group, but not in the delinquent group.

I made my deal, bought when prices were going up in 2005 in conjunction with a new job. We were ready to sell at two years (tax purposes) with whatever equity we had, but couldn't get it done (time, job, new baby). Got hit in 2008 like everyone else. Now, the home in which we had equity wasn't worth what we paid for it, and was dropping. Then, to add to the issue, several homes in our heavily blue-collar neighborhood went empty and into foreclosure.

Prices have stabilized now, but even after 9 years, we're not back to what we owe yet.

I pay my bills.

[MplsSteve]

Even in spite of being underwater, you probably never really get sick of the view, right?

[morphing libertarian]

Lol. Prefer from above

[Elsie]

4 Million Homeowners Still Underwater

So?

Don't SELL!

Two months after buying a new car we don't hear folks complaining that their car is NOT worth what they still owe on it!

Why should houses be any different?

[Graybeard58]

That does make me appreciate having a paid off house, and only having to come up with the money the shakedown/protection racket government wants every year.

Yep, we never truly "own" our own homes.

[Graybeard58]

Wal-Mart Stores, Inc. was incorporated on Oct. 31, 1969. On Oct. 1, 1970, Walmart offered 300,000 shares of its common stock to the public at a price of $16.50 per share. Since that time, Walmart has had 11 two-for-one (2:1) stock splits. On a purchase of 100 shares at $16.50 per share, that 100 shares has grown (through splits) to 204,800 shares, currently worth $84.12 per share.

I bought my first shares in 1981 and have been in on 7 of those splits.

Hind sight is beautiful - Wish I had bought even more throughout the years. Still buying though, my wife receives shares with her compensation package, plus she has stock options in the same package.

[familyop]

I’ve see for-sale signs posted for years and eventually taken down without prices lowered enough for sales. Most likely, quite a few are continuing to live in them without making payments. The establishment doesn’t want property taxes to go down.

[Psalm 73]

"I'm in the underwater group, but not in the delinquent group....I pay my bills."

I hear 'ya, brother (sister?) - I owe it, I pay it - that's the way I was raised.
Worth about 40K less than I paid, but my intent was a place to live and not for an investment - so I'm OK with that.

[pepsionice]

Along about the early 90’s...there was a young Air Force airman who was taking college classes at night around the Ramstein area. The kid had a grandmother to pass on, and left him roughly $100,000. The kid spent a year studying possible investment options. At that point in time, there really wasn’t a great knowledge guru system, and he simply read an awful lot of material.

Eventually, he decided to invest the whole thing on a hardware company which had seen great times in the mid-80s, had massive stock growth, failed to see the next generation at the right time, and massive stock losses. The stock was selling for roughly a quarter a share at the time he bought into them.

Most people would say it was highly foolish, but he’d done the research and knew that the company was going to skip one generation on development and catch up. Roughly six months after buying into it...the stock started to rise, and hit near sixty cents. You and I would have sold and been happy with doubling the money. He didn’t sell. At the one-year point, the stock was now over $1 a share. Somewhere near the two-year point...he was hitting near $10 a share. He sold and made near $4 million before taxes.

He walked away from the Air Force, and an associate of mine who knew the guy personally...said that he was taking all of the profit, and investing into an upscale and somewhat new hotel with no profits showing for several years....which was near a major US southern university. He was going to convert the 400-odd rooms over to student living, with a chow-hall-like operation for food, and a BX-like operation for clothing and personal goods. He figured to double his money within four years and expand out with other real estate options in the future.

There are lots of great investment stories out there like that, and it generally proves that America still has potential American dreams to be achieved.