When real estate was booming several years ago and home sales were great, it was all an illusion. Mortgage companies were selling homes to individuals that really could not afford them by using innovative loan packages such as the 80/20 loan and the interest only loan. Many of the individuals that became homeowners during this time period were lured into loan products designed to get them in the house without regard for the investment potential of owning a home. The mortgage companies were looking out for themselves and the commissions they earned as a result of turning around sells quickly at high volumes.
Fast forward to present day with this current economy and a growing problem has arisen. When the housing market took a plunge as a result of the exposure of the sub prime loans, many homeowners equity went with it. The result has been a problem typically only seen in the auto industry. Many mortgages are currently upside down. This normally happens when a person tries to trade in a car that is valued at less than they owe for it.
Now many homeowners are forced to make the unpopular decision of letting a home go into foreclosure or continue to make payments on something with negative equity. How did this happen? When these individuals purchased the homes, they had no idea the market would plunge into a downward spiral. As a result of this spiral the housing market is perfect for individuals interested in buying, but discouraging for sellers.
The mortgage crises has far reaching implications for the future of home ownership in America. When individuals are forced to sell their homes for thousands of dollars less than what it was purchased for, this is frustrating. As home values continue to plummet, this devaluation of homes will continue at an alarming rate.
16 million homeowners are “upside-down” on their mortgages, up from 10 million, or 15% of owner-occupied homes, one year ago
According to a recent Wall Street Journal Article,”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 Economy.com. 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.”
The federal government is offering $8,000 dollar tax credits to home buyers, but sadly there are not many programs to help the individuals losing their homes that have worked well across the board.
