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.
When 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
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