Despite the national negative equity rate falling through the first quarter of 2013, millions of homeowners with mortgages that are not underwater still lack enough equity even if they wanted to move.
According to Zillow, 13 million homeowners—accounting for 25.4% of all homeowners with a mortgage—were underwater in 1Q13. However, another 18.2% of mortgage borrowers, or 9 million homeowners, while not technically underwater, likely do not have sufficient equity to afford to purchase a new home. Meanwhile, when including homeowners with less than 20% home equity, the “effective” negative equity rate at the end of the first quarter was 43.6%, resulting in a total of 22.3 million homeowners. In realistic terms, this means these homeowners don’t have the ability to put a 20% downpayment on a new house, therefore tying them to their current property and contributing to inventory shortages. “Reaching positive equity, even barely, is an important milestone. But things like real estate agents’ fees and a downpayment for the next home traditionally come out of the proceeds from the prior home’s sale. Without enough equity, these costs will instead have to come out of a homeowner’s pocket, leaving many still stuck,” said Stan Humphries, chief economist for Zillow. A homeowner reaches positive equity when the market value of their home is greater than their outstanding loan balance. But listing a home for sale and buying a new one generally requires equity of at least 20% to comfortably meet related costs. Among the 30 largest metropolitans covered by Zillow, the highest negative equity rates was Las Vegas, where 71.5% of homeowners were in this category, followed by Atlanta (64.1%) and Riverside, Calif. (59.7%). “Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven’t yet translated into more homes for sale,” Humphries added. “The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell.” The Seattle-based real estate information provider is predicting that the negative equity rate will decline to 23.5% in a year. If this happens, 1.4 million homeowners nationwide will move into positive equity. Zillow said the majority of these newly freed positive equity homeowners are anticipated to come from Los Angeles, Riverside and Phoenix, consisting of 94,642, 74,693 and 51,580 homeowners, respectively.
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The Obama administration has extended its signature loan modification program for
two years to help more families avoid foreclosure. Launched in 2009, the Home Affordable Modification Program has assisted 1.6 million struggling borrowers through loan modifications, principal reductions, short sales and deed-in-lieu transactions. “The housing market is gaining steam, but many homeowners are still struggling,” said Treasury Secretary Jacob Lew. The HAMP program forced servicers to significantly reduce monthly mortgage payments by 20% or more so borrowers have a better chance of remaining in their homes. This reduced redefault rates. Before HAMP, most modifications actually increased the borrower’s monthly payments. “Extending the program for two years will benefit many additional families while maintaining clear standards and accountability for an important part of the mortgage industry,” said HUD Secretary Shaun Donovan. The HAMP program was due to expire at the end of this year. Earlier this year, consumer groups and legal aid attorneys urged the Treasury secretary extends the program that continues to provide modifications for around 15,000 delinquent homeowners a month. “The foreclosure crisis is not yet over and we ask that the Treasury Department prevent the HAMP program from ending in just nine months,” according to a joint letter signed by 40 groups. The letter points out that HAMP modifications provide deeper payment relief and perform better than proprietary modifications. And HAMP mods also facilitate principal reductions on non-Fannie Mae and Freddie Mac loans. The Treasury Department uses the monies from the Troubled Asset Relief Program to fund the HAMP program. |
Dan GarciaTrevana Properties is a placement company working with a variety of hedge funds, REIT's, commercial banks, specialty boutique lenders, private investors and other funding sources not widely known to the general public. Archives
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