Blog
How Much Money Extinguishes Homeowners’ Negative Equity?
January 2, 2010 by Neil · Leave a Comment
Nearly 10.7 million borrowers, or 23% of the residential mortgage market, owed more on their mortgages at Sept. 30 than their homes were worth.
Sam Khater, a senior economist with the unit of First American Corp. of Santa Ana, Calif., has estimated that the average value of mortgage debt for homes with negative equity was $280,000 in the third quarter. The average underwater borrower owed $69,700 more on her property than it was worth.
It would take $745 billion — more than the $700 billion the Treasury is spending to bail out the banking system throught the Troubled Asset Relief Program — merely to extinguish borrowers’ negative equity and give them a 100% loan-to-value ratio, Khater said.
A senior economist at First American CoreLogic Inc. has estimated that it would cost $858 billion to extinguish the negative equity of all underwater homeowners and give them a 5% stake in their homes.
(Hat tip: Kate Perry, American Banker)
Several analysts say one reason the Treasury Department pledged unlimited support to Fannie Mae and Freddie Mac last week is that the Obama Administration is planning to expand the Home Affordable Modification Program to allow servicers to reduce borrowers’ principal balances. Mortgage experts say borrowers who get this type of modifications are less likely to redefault. That’s particularly true for borrowers with no equity or even negative equity, who have little incentive to stay in their homes.
If homeowners continue to throw their keys to banks, they will only add to the twenty months of shadow housing inventory already accumulating. This will only increase vacancies, reduce average rent prices, and drive multifamily valuations further south.
Related posts:
- 34% of All Homeowners Are Underwater Today’s WSJ reports that 23% of homeowners owe more...
- Fewer Underwater NY Homeowners Than National Average The percent of families in the region who owe...
- How Much Equity Has Disappeared From U.S. Homes Since 2006? Since 2007, U.S. commercial property owners have lost a...
- How Has Obama’s Loan Modification Program Hurt Homeowners? Once homeowners surrender their underwater homes to lenders, and...
- Key Difference Between Homeowners and the Banks Holding Multifamily Real Estate Assets What is a key difference? Keep reading for the...
Related posts brought to you by Yet Another Related Posts Plugin.
