Tuesday, November 4, 2008

More Underwater Info

The people with negative equity face numerous challenges. They are unable to refinance and have no equity to fall back on in an emergency. Banks are much less likely to renegotiate with them which means that foreclosure may be looming. This is also the group that struggles with the "walk away" decision. Why bother with a short sale or upcoming foreclosure? Why bother paying down a property that is now worth half the purchase value? These are some reasons why underwater issues affect the entire housing sector - not just those in trouble. This brings us to an article in the Philadelphia Inquirer titled Negative home equity less in Pa., N.J. Lets take a look -

In Pennsylvania, 5.7 percent of the state's 1.413 million single-family homes had negative equity, according to the study, released Friday by First American CoreLogic Inc. It was the company's first state-by-state assessment of homes worth less than the amount of the mortgage.

Nationally, more than 7.5 million mortgages - 18 percent of all properties with a mortgage - were in negative-equity position or, as it is often known, "under water," as of Sept. 30, the California company reported.

About 9.3 percent of New Jersey homes with mortgages were in negative-equity territory, the study said. Its overall analysis suggested that most of those houses were in the higher-priced northern areas of the state, near New York.


Patrick Newport, an economist at IHS Global Insight Inc., a Waltham, Mass., economic-information company, agreed with the estimate by CoreLogic, but said most borrowers with homes "underwater" would not default. His reasoning: First, as a matter of principle; second, because walking away from a home damages a person's credit for years afterward; third, because they plan on living in the house for years and can afford the payments; and finally, because they expect the market to recover.


Joel L. Naroff, the chief economist of the former Commerce Bancorp Inc., which is now TD Bank, said being underwater and losing homes were two totally different issues.

While underwater and foreclosure are not the same, they are related. As noted above, underwater is basically on the financial brink. Some will survive in tact and probably get stronger from the experience.

The article also provides this table of information -

Homes worth less than the current mortgage*:

Total Number Mortgages Underwater

Pennsylvania 1,413,181 79,978

New Jersey 1,748,179 162,411

*As of October

SOURCE: First American CoreLogic Inc.

While these numbers are a good sign, part of this is due to the lower decline of housing values in the region. As foreclosures rise, property values will fall and the number of underwaters will then increase. The impact of the financial industry on the region will have a big impact on employment levels, property values, and regional economic stability.

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