Many news outlets are reporting officials from Deutsche Bank AG have recently released the results of a study that estimates the number of “underwater” mortgages will rise to nearly 50% of all U.S. mortgages by the year 2011. A mortgage is considered “underwater” when the borrower owes more on a property than the actual value of the property. Borrowers with loan-to-value ratios of 125 percent or more will increase from 14 percent to 28 percent the study concluded. A 14% decrease in home values across the board is predicted as well.
The analysts noted that lack of consumer confidence and cautionary spending would create even more loan defaults, as unemployment rates continue to rise and the housing market correction carries into 2010. They also foresee a potential rise in the number of borrowers who “strategically default” or “walk-away” from these negative equity loans to escape the underwater mortgage situation and improve their immediate financial situation, at the risk of being able to obtain mortgage financing in the future.
As foreclosure rates increase, once highly evaluated properties in a neighborhood begin to decrease in value, and some estimates put the loss of value as high as 9%. This depression of property values causes the remaining mortgages to go underwater, and creates a spillover effect on foreclosed properties and the generation of additional REO assets. An REO asset is one owned by a bank because it has not sold at auction, usually because the amount owed to the lender on the home is greater than the properties market value. This increase in “underwater” mortgages will inevitably lead to an increase in bank owned real estate. Coastal REO Solutions has many options and services available to lenders and banks to deal with these foreclosures, defaults and walk-aways. Contact us today to learn about all the options available to your institution.
Tags: Economy, Foreclosure, Mortgages, REO, Underwater Mortgages
This article sure shows the dilemma people and banks have when it comes to upside down mortgages. Great article, very useful.
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