NOW: 14 Million Underwater NEXT YEAR: 25 Million
So you can see from the slides below many homeowners will be underwater next year, that is your house will be worth less than you owe the bank. If you are considering a loan modification or have already done a loan modification do you think it makes sense? You are going to be upside on your house for many years. If you need to sell your house it will be almost impossible. Troubled Property Solutions believes that a short sale of your house in most cases is the better decision. If you get a loan modification today, you home is still going to decline in value for the next 1-2 years, see the report below from Deutsche Bank. Give us a call on 1-619-631-4546 to discuss your option.
Every City Down More Than 10%
Underwater By Geography: NOW
Underwater By Geography: NEXT YEAR
NOW: 26% Of Mortgages Underwater
NEXT YEAR: 48% of Mortgages Underwater
NEXT TO GET SLAMMED: Prime Jumbos And Primes
NOW: 16% Of Conforming Loans Underwater
NEXT YEAR (2010): 41% Of Prime Loans Underwater
NOW: 29% Of Prime Jumbos Are Underwater
NEXT YEAR (2010): 47% of Jumbo Primes Will Be Underwater
SUBPRIME: 50% Underwater
SUBPRIME: 68% Underwater By Next Year
ALT-A: 49% Underwater Now
ALT-A: 66% Underwater Next Year
OPTION ARM: 77% Underwater Now
OPTION ARM: 89% Underwater Next Year
So What Does All This Mean?
The reason all this is important is that, if you’re underwater, you’re much more likely to default on your mortgage than if you have some equity.
You’re ESPECIALLY likely to default, moreover, if you’redeeply underwater.
In the last housing bust, house prices in Massachusetts fell about 16% (see chart). Approximately 7% of borrowers who were underwater defaulted.
7% isn’t that bad, but for four reasons, DB’s Karen Weaver thinks the impact will be much worse this time around:
- The house price drop is much worse, so borrowers are more deeply underwater. The Mass drop was 16%. We’re already at 33% nationally.
- Superior borrower quality in the Massachusetts data. More prime, conforming mortgage loans
- More fixed-rate loans in the Massachusetts data.
- Lower unemployment. Mass unemployment peaked at 9.1%. We’re now at 9.4% nationwide.
So, bottom line, more negative equity will lead to more foreclosures.
On a positive note, the level of foreclosures would have to be vastly higher than the Massachusetts data to really surprise anyone at this point. If 20% of the 25 million households that slip underwater default (3X the Massachusetts rate), that will be 6 million foreclosures. Most analysts are already expecting numbers in that range.


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