Foreclosures Reduce Number of Underwater Mortgages
The number of underwater mortgages has declined slightly thanks to increased foreclosures for sale. The real estate data source said that 11 million homes had under water mortgages in June end. That represents a slight decline since 11.2 million from March and ranks as the second quarterly decline. Number of under water mortgages usually rises with falling home price values.
But data proves that rather than falling home price values, property foreclosures accounted for the decline in under water mortgages. Corelogic said that the good news was that the under water mortgages were on a decline but the bad news was that it is happening due to rising foreclosures. The greater the count of under water mortgages the bigger is the chance for mortgage defaults.
In sum, 23% of all US mortgages were under water as of June end. If home prices drop further, another 2.5% of home owners having equity of less than 5% in their homes are prone to result in under water. According to the report, sum total of under water mortgages consists of $2.9 trillion in debt.
Millions have gone underwater because of several years of declining home prices as well as the trend of home owners who borrowed with the security of their home equity. When a home owner is under water, he cannot qualify for a refinance loan and has no other option but to resume making mortgage payments in the hope that some day, the home value may start rising.
Last year, the downward movement in home prices started stabilizing, but home values may be expected to resume falling in several states because of high numbers of foreclosures as well as soaring rates of unemployment. This implies that homes purchase during the real estate golden period are not likely to gain value for several years to come.
In this situation, many home owners commit strategic default; they simply abandon the homes defaulting on their mortgage payments. Some others tend to default because of facing job loss or medical bills. Under water mortgages also add to the decline in home sales because home owners may not be willing to undergo losses or cannot get their lender to arrange for a short sale.
Home sales are plunging in places where more home owners with negative equity on their houses are present. Such home owners cannot sell and are trapped. This situation usually leads to foreclosures.