23% of Homeowners Underwater

23% of Homeowners Underwater

According to this Wall Street Journal article, One in Four Borrowers Is Underwater, First American CoreLogic, a real-estate information company based in Santa Ana, Calif, reports that 23% of US homeowners who have mortgages owe more than their homes are worth (i.e. underwater). See below for the state by state analysis of underwater home owners.



As you can see, according to the map above (click on it to see the stats), 13.2% of Tennessee homeowners with mortgages are underwater with an additional 7.0% being almost nearly underwater (Defined as properties within 5% of being in a negative equity position). While better than the 23% figure stated in the article title, it is fact still a fairly large number which will lead to more problems. According to the article, "These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply. Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American."

The article quotes Mark Fleming, chief economist of First American Core Logic, as saying negative equity "is an outstanding risk hanging over the mortgage market. It lowers homeowners' mobility because they can't sell, even if they want to move to get a new job." The article mentions that Fleming believes that borrowers who owe more than 120% of their home's value were more likely to default. This is proving to be significant since according to the article, "Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman." I cover this topic in my blog post Underwater Homeowners Walking Away From Their Homes.

Without going on an on with this post, I will end it with the comment that the increase in the number of underwater homeowners will lead to an increase in short sales and foreclosures (as homeowners give up on regaining their lost equity) and this will in turn put additional downward pressure on home prices.

If you are a Middle TN homeowner, property owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in and around Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Homeowners Walking Away: Right or Wrong?

Homeowners Walking Away: Right or Wrong?

In my previous blog post, Underwater Homeowners Walking Away From Their Homes, I covered the issue of homeowners who "walk away" from their homes and mortgages (even though they can afford to pay their mortgages) due to the mortgage debt on their homes far exceeding the market value of their homes (in other words, they are "underwater"). "Walking away" is also called a "Strategic Default". That post briefly covered the fact that most homeowners view "strategic default" as being morally wrong, but despite that many homeowners would still "walk away" from their homes and mortgages if the debt to market value ratio reached a certain point. The post showed, that based on current financial research, that debt to market value ratio is somewhere around 50%. In this post I want to address the issue of whether "walking away" from a home and mortgage is Right or Wrong?

I will only state my position briefly as I would like input and comments from other people. A few years ago I would have said that "walking away" from your home and mortgage was definitely wrong. Now, I am not so sure. Real estate investors, business owners, Wall Street firms, etc. have "walked away" from debts for many, many years. If a business or investment firm cannot pay a debt, they file bankruptcy, shut down, simply do not pay, or now ask for a government bailout. Why should looking at paying debts as a business decision be OK for businesses and investment firms, but not for individuals? That is why I am no longer sure "walking away" is wrong. If buying a home is an "investment" as the National Association or REALTORS (NAR) has stated for years (they should regret that statement now) then why shouldn't a homeowner have the option to "walk away" if that so-called "investment" goes bad? After all, the mortgage lender does have contractual recourse (via the loan note and mortgage) such as reporting the lack of payment to credit reporting agencies, taking the home back via foreclosure and pursuing the delinquent homeowner for any losses not recovered by selling the foreclosed home. No where in the documents that the borrower/homeowner signed does it say that shame or moral indignation is part of that recourse. That being said, I do think that trying to sell a home via a short sale is a significantly better option for a homeowner than a "strategic default". Therefore, I would highly recommend that a homeowner try a short sale before "walking away". With that I respectfully request your comments.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Underwater Homeowners Walking Away From Their Homes

Underwater Homeowners Walking Away From Their Homes

According to this New York Times article, Homeowners Walking Away, a study produced by the Financial Trust Index (a financial and economic research group formed by the Kellogg School of Management at Northwestern University and The University of Chicago Booth School of Business) states that more than 25% of foreclosures are actually strategic defaults where the homeowners walk away from their homes and mortgages even though they can afford to pay their mortgages. The Press Release, When Homeowners Walk Away: New Research Reveals More than 25 Percent of Mortgage Loan Defaults are Strategic, and Study, Moral and Social Constraints to Strategic Default on Mortgages, show that while most homeowners generally believe that walking away from a home is immoral, many will still do it if their negative home equity situation reaches a certain threshold. According to the Press Release "17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent of the value of the house." Given that information and the fact that a Deutsche Bank report published this past summer (See my blog post on the subject - SCARY STUFF: About half of U.S. mortgages seen underwater by 2011) predicts that about 50% of all US mortgages will be underwater by 2011, it is highly probable that the foreclosure crisis could actually accelerate in the near future rather then settling down as several organizations have suggested. I predict that there will be record numbers of loan modifications, short sales and foreclosures over the next 3 years.

According to the Press Release "People under the age of 35 and over the age of 65 were less likely to say it was morally wrong to default compared to middle-aged respondents." I guess that younger people and older people view the strategic default decision more as a business decision than a moral one. There are in fact consequences of walking away from your home and mortgage including damaged credit, which will make it very difficult to borrow money in the future, get credit of any kind, obtain insurance (insurance companies frequently check credit as part of the insurance underwriting process) and even get a job (employers frequently check credit as part of the job application process). Another pitfall of the strategic default is that you are open to a potential deficiency judgment where the mortgage lender could pursue you for their losses not recouped by selling your foreclosed home. For these reasons, I highly recommend trying a short sale instead of a strategic default.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

A Disturbing Trend: Delinquent Homeowners Abandoning Their Homes

In my efforts to locate homeowners who are behind on their mortgage payments, or already in foreclosure, I have discovered a disturbing trend. It appears that many of these homeowners are simply abandoning their homes and ignoring their problems. This is a terrible idea. Until the bank owns your home, you are liable for anything that happens to or on your property. Beside the liability issues, "abandoning ship" does nothing to stop, or even mitigate your potential liability to the lender(s).

If you are a homeowner in financial trouble, please do not abandon your home. Follow the instructions in my blog post Question and Answer: What Should I Do if I Can't Pay My Mortgage?.

If you live in the following areas, please contact me as I can help you solve your real estate problems since I am a Middle Tennessee short sale, pre-foreclosure (preforeclosure) and foreclosure expert and REALTOR.

• Rutherford County Tennessee: Murfreesboro TN, Smyrna TN and La Vergne TN (LaVergne TN)
• Williamson County Tennessee: Brentwood TN and Franklin TN
• Davidson County Tennessee: Nashville TN and Belle Meade TN