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Understanding Underwater Mortgages

What Is Happening With Underwater Mortgages?

Underwater mortgages are part of the fallout from the Great Recession in recent years. Underwater Mortgages are simply mortgages where the value of the home is below the amount owed on the mortgage.

Many of these mortgages where thrown into the underwater category when housing prices dropped in 2008 during the beginning of the financial crisis. What has transpired since for the owners of these mortgages has been a long and drawn out process of paying their mortgages on homes they cannot sell because the value of the home is far below the amount they owe.

So where do they stand now?

The rate of underwater homeowners is much higher among the homes with the least value, according to Zillow, which uses data from credit bureau TransUnion. More than 25% of those who own the least valuable third of homes were upside down, compared with about 8% of the most valuable third of homes. In Atlanta, 46% of low-end homeowners were underwater, compared with 10% of high-end homeowners. In Baltimore, 32% of low-end homeowners were in negative equity, compared with 9% of those who own the highest-value homes.

Millions of Americans are so far underwater, it’s likely they may not re-gain equity for up to a decade or more at these rates,” Humphries says. Because negative equity is concentrated so heavily at the lower end of the market, it prevents potential first-time buyers from finding affordable homes for sale, he adds. “Owners of those homes can’t move up the chain because they’re stuck underwater in the entry-level home they bought years ago. The logjam at the bottom is having ripple effects.” – via MarketWatch

There Is Good News

For the millions of people who own one of these underwater mortgages it has been a long 8 years. They have not been able to sell their home without paying out of their own pockets to make up the difference between the value of the home and the selling price.

For some that means they’ve passed up job opportunities, not been able to move up to a larger home when they were ready, or not been able to move down to a smaller one. The situation for them is very real and very frustrating. However, things are changing and here is the good news.

Call them the invisible victims of the housing collapse: The millions of homeowners who’ve spent nearly a decade dutifully making mortgage payments on homes worth less than the balance of their loans. Known as “being under water,” many in this crowd were never in danger of losing their home. But that doesn’t mean they didn’t suffer.

Real estate data firm RealtyTrac says the number of “seriously” under water homes fell dramatically in 2015 as housing prices around the country continue to recover from their 2008-2009 lows. At the end of 2015, there were 6.4 million U.S. homes at least 25% under water. That’s roughly 11.5% of all homeowners with a mortgage. While that sounds like a lot,  it’s down from 7.1 million at the end of 2014 — 12.7% of all homeowners with a mortgage — and down from 18.8% at the end of 2013.

“Over the past three-and-a-half years, the number of seriously underwater properties has been cut in half, but we continue to deal with a long tail of seriously underwater properties, and it will likely be another five years at least before most of those remaining underwater properties move into positive equity territory,” said Daren Blomquist, vice president at RealtyTrac. – via Credit.com

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