Underwater Mortgages Drive the Next Foreclosure Wave

Written By Brian Hicks

Posted August 17, 2009


big wave


According to a recent report from First American CoreLogic, nearly one-third of all U.S. mortgages are currently underwater. Glub..Glub.

That is the tough math that has left 15.2 million borrowers owing considerably more than their home is worth, leaving them in a negative equity position.

On top of that, the report also noted that an additional 2.5 million homes were within 5% of becoming negative as of June 2009. Together, that added up to a full 38% of all mortgages nationwide that were now considered at risk.

And while that awful number is still short of Deutsche Bank’s recent prediction of 48% by 2011, the growing number of underwater mortgages means that a second wave of foreclosures can’t be far behind.

That’s because it’s not primarily higher payments that drive foreclosures, but falling asset prices—-otherwise known as the 800lb. gorilla.

In the meantime, the foreclosure tsunami rolls on setting one new record after another….

From CNNMoney by Les Christie entitled: Foreclosure plague: No cure yet

The foreclosure plague continued to devastate last month.

There were more than 360,000 properties with foreclosure filings — including default notices, scheduled auctions and bank repossessions — an increase of 7% from June and 32% from July 2008, according to RealtyTrac, an online marketer of foreclosed homes. In fact, one in every 355 U.S. homes had at least one filing during July.

“July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac.

“Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing significant growth in both the initial notices of default and in the bank repossessions.”

The jump occurred as several foreclosure moratoriums phased out. They were initiated by many states to give the administration’s foreclosure-prevention efforts time to work. But for many help did not come: The modification and refinancing programs have met with less success than hoped.

RealtyTrac statistics revealed that more than 87,000 properties were repossessed by lenders, effectively sending many families out of their homes. There have been a total of 464,058 repossessions — or REOs in industry parlance — so far this year (through the end of July).

“We’re seeing more option ARM resets, triggering defaults and more prime loans, which are failing due to job losses,” said RealtyTrac spokesman Rick Sharga.

That is resulting in more filings on higher priced homes, for two reasons: 1. option ARMs were typically used for more expensive properties; 2. borrowers using prime loans generally had better credit and were able to afford more expensive houses.”

Housing Bottom?….Not a chance.

As for the banks, it goes without saying that there is definitely more pain to come on that front. 

Related Articles:

Nine Roadblocks for the Rally

Elizabeth Warren warns on toxic assets

Catastrophe averted, personal bankruptcies skyrocket

The ‘irrational exuberance’ of the stock market

To learn more about Wealth Daily click here

Angel Pub Investor Club Discord - Chat Now

Brian Hicks Premium