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Many mortgage borrowers upside-down
An upside-down house
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Scott Jagow: I imagine it's scary if you owe more on your home than your house is worth. It's called being upside down on your mortgage. A study out today says more than seven million properties are in that situation. Nancy Marshall Genzer has more.
Nancy Marshall Genzer: The study was conducted in the third quarter of this year by First American CoreLogic. The study says almost 20 percent of mortgage borrowers have negative equity. But it's not clear that all of those mortgage holders will go into foreclosure.
Guy Cecala is the publisher of Inside Mortgage Finance:
Guy Cecala: But not all of that 20 percent, or 1 out of every 5 borrowers, is in financial problems. So the other question you have is, to what extent will people who figure out they owe more than their house is worth, and really won't be making anything other than what amounts to a rental payment, are going to start walking away from their homes.
Cecala says that's not clear, because we don't have enough experience with mounting foreclosures to know what people will do.
In Washington, I'm Nancy Marshall Genzer for Marketplace.
I think the banks are overestimating the number of home mortgages that are "upside-down". We have a primary mortgage and took out a HELOC (currently at 3.75%) a couple years ago to buy a 2nd home with cash. The bank holding the HELOC arbitrarily re-priced the value of our primary residence, based upon some national equation, without the benfit of looking at our home, the improvements we've installed, or our local market. To get the loan we had to have an appraisal - I'm at a loss how they can arbitrarily make these changes without an appraisal. In any event, they reduced the 2-years-ago appraised price by $50K, nearly 20%. Meanwhile, a house two blocks over in our neighborhood, 500 s.f. smaller than ours on a smaller lot with similar upgrades sold in the last 30 days for $30K MORE than our last appraised value. Many colleagues have shared similar stories with me and many have fought the re-pricing by having new, professional, custom appraisals performed. I get no benefit from doing that and I'm not wasting $300 to do the bank's job for them -- that I already paid for 2 years ago.
So, if banks are providing these statistics to you, they are based upon arbitrary re-pricing of our homes' values and are likely skewing their numbers.
The only reason that I could guess why banks would do this is that it may help them get more gov't funding and support from Congress. It is certainly to their benefit for everyone to think the country is in worse shape than it is, if they can get some of the bailout money. Sadly, a pessimistic speculation, but I cannot come up with any other benefit to these finanical institutions for behaving so hap-hazardly. Isnt that what got them into this trouble to begin with?
