Will Nearly Half Of Mortgages Be Under Water In 2011?

Will Nearly Half Of Mortgages Be Under Water In 2011?

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Deutsche Bank, which is also one of the largest and most respected financial institutions in the world, recently made a prediction that by 2011, nearly half of all US homeowners with a mortgage will be “under water” by then. Under water (or underwater) is a financial term which indicates that a home is worth less than what is owed on the loan. Holders of these types of loans are considered “upside down” and would lose money if they were to sell their homes.

mortgagesWhen the real estate market has a significant number of underwater homes, default rates rise. With more defaults, lenders lose money and borrower’s find that their creditworthiness has plummeted. All of this bodes poorly for the economy which is very fragile right now and poised to absorb trillions of more debt should Congress pass its national health plan.

The thinking coming from Deutsche Bank regarding home loans two years hence is that quite a few adjustable rate mortgages (ARMs) will be resetting in 2011, which means that homeowners will be faced with higher mortgage payments. That problem began to surface in 2006 and 2007, when ultra low-rate variable mortgages began to reset, forcing the first wave of what is now millions of homeowners to default on their loans. Faced with the twin problems of higher mortgage payments and a loss of income, homeowners have been losing their homes in droves. Deutsche Bank sees that problem surging once again in 2011.

Steps To Strengthen Your Position

But with any national problem, the issue is certainly individual although the collective collapse of the housing industry could lead to the ruin of our nation. Though 2011 isn’t so far away, homeowners who believe that they will be underwater now should keep some things in mind and take action as appropriate including:

Review Your Mortgage Terms – When will your mortgage rate reset? At what rate do you expect it to rise to at reset date? Use a mortgage calculator to compare your current monthly payment with your anticipated monthly payment to see what your price differential will be. Perhaps in your situation the difference won’t be so great, allowing you to absorb the increase.

Keep Tabs On Your Market – The Deutsche Bank survey makes a broad assertion, but as most everyone knows housing conditions are localized. Even in your regional market, a home in one neighborhood could drop in price more significantly than a home in another neighborhood. As always, location is the key as is home condition, neighborhood attractiveness, local job availability, etc. A strong job market can stabilize the housing market.

Work On Your Bottom Line – If you’ve lost your job or have taken a significant salary cut, then you’re immediate priority is to make money. If you are beginning to fall behind on payments to your lenders, communicate to them that you are working to resolve the problem as soon as possible. If you are working right now, then examine your spending habits to see what can be scaled back. Apply for a lower, fixed rate mortgage if your credit is good. In other words, be proactive – not reactive.

The forecast made by Deutsche Bank is, on the surface, a frightening one. But it doesn’t have to be the fate of every homeowner. Though we can’t impact what happens on a national level on a very personal level you may be able bring about the right kind of change to help improve your situation.

Adv. – Are you considering a loan modification? If so, this mortgage medication website could offer just the prescription you need to improve your financial health.

See Also — 48% Underwater? Lawler Challenges Deutsche Bank Report

48% Underwater? Lawler Challenges Deutsche Bank Report

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Comments

  1. Ditech Home Loans
    Ditech Home Loans 10 August, 2009, 17:01

    Hopefully, the loss of home equity is not a good reason to walk away from your mortgage. If you could afford your mortgage payments when you had equity, you should be able to afford your payments without equity.

  2. Boldhawk
    Boldhawk 2 September, 2009, 07:41

    First find out where the original paper is… who’s holding your mortgage. Chances are the servicer doesn’t know, or lost track of it, so that will delay any foreclosure. Then, above all, go to court and defend it, even if the odds appear against you. Pro per costs little, and you can argue. Also, by then, Congress may pass a cram down law because the refinance and modification systems are working badly if at all.

    Of course, a reasonable banker (which type seems to be gone forever) might just renegotiate the whole thing; bring interest down and forgive portions of the principle for the property drop in value. This happened to me and a small bank was holding the paper, so it would be cheaper and better all the way around to renegotiate.
    .-= Boldhawk´s last blog ..Economic Recovery Not in Sight =-.

  3. Matthew C. Keegan
    Matthew C. Keegan Author 2 September, 2009, 07:43

    Boldhawk — good points! I think many homeowners are not being aggressive enough to defend their interests even if everything is stacked against them. I’m hearing that some people are throwing in the towel, not fighting to save what is theirs even if they under water.

  4. James D. Stackpole
    James D. Stackpole 14 April, 2010, 20:29

    Been reading for a few days now. It was very good and insightful information. BTW, I like your site design as well. I enjoyed reading it and hopefully you will write more soon. Do you have a newsletter? How do I subscribe to the blog itself?

  5. Matthew C. Keegan
    Matthew C. Keegan Author 15 April, 2010, 05:33

    Thank you for your kind words, James. No, there is no newsletter with this site. We believe that the information we impart is similar to what you would find in a newsletter, therefore everything we want to share is published to this site.

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