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Wednesday, August 05, 2009

Negative Equity: 16 Million Homeowners Underwater

by Calculated Risk on 8/05/2009 03:27:00 PM

Two separate reports ...

From Bloombeg: ‘Underwater’ U.S. Mortgages May Hit 48%, Deutsche Bank Reports

The percentage of properties “underwater” is forecast to rise to 48 percent, or 25 million homes, as property prices drop through the first quarter of 2011, according to [Deutsche Bank] analysts Karen Weaver and Ying Shen.
I guess Deutsche Bank didn't get the memo about house prices finding a bottom.

Note: Deutsche Bank estimates 26% of homeowners are currently underwater, matching the data below from And Deutsche Bank sees the next wave hitting prime borrowersm, from the report:
While subprime and Option ARMs are currently the worst cohorts with underwater borrowers, we project that the next phase of the housing decline will have a far greater impact on prime borrowers (conforming and jumbo) ... By Q1 2011, we estimate that 41% of prime conforming borrowers and 46% of prime jumbo borrowers will be underwater, a significant increase over the percentage of these borrowers in Q1 2009. The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding.
From the WSJ: More Homeowners ‘Upside Down’ on Mortgages
Some 24% of owner-occupied homes had mortgage debt that exceeded the values of those homes at the end of June, according to data from Equifax and Moody’s That number rises to 32% when looking at the share of homeowners with mortgages that don’t have equity left in their homes.

Overall, 16 million homeowners are “upside-down” on their mortgages, up from 10 million, or 15% of owner-occupied homes, one year ago.

Nearly 10% of owner-occupied homes now have mortgage debt with loan-to-value ratios of at least 125%, and roughly half of those homes have mortgage debt with loan-to-value ratios of 150% or more.
Mods won't help these homedebtowners. Most mods just capitalize missed payments and expenses, and either lower the interest rate for a few years or extend the term leaving the homeowner underwater (aka pretend and extend).

Although Deutsche Bank may be pessimistic on house prices, both reports suggests about 16 million homeowners are currently underwater, and probably another 5+ million have no equity.