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Borrowers with Negative Equity Weigh Their Options

(12-7-09) Almost a quarter of all homeowners currently have negative equity positions in their homes, that is to say the amount of their outstanding mortgage balance exceeds the market value of their property. This confounding situation now affects nearly 11 million homeowners and is expected to rise significantly through 2011. Efforts to modify the mortgages of approximately 650,000 borrowers have been made through the government's HAMP program, as many homeowners enrolled in trial modifications have experienced a decrease by as much as 40% of their monthly payment. However this still may not be enough to keep these distressed borrowers in their homes as almost 25% of these borrowers have fallen behind once again in making the new modified payment. A perfect storm of job losses followed by accelerating mortgage defaults and falling home prices has set in motion a chain reaction that even the temporary stop gap measure the federal housing tax credit has provided may not be enough to stem an oncoming tide of foreclosures. Loan modifications are not occurring quickly enough to stop the flood and homeowners have grown increasing impatient with an inflexible, uncooperative and seemingly illogical taxpayer bailed out banking industry.

It now appears that in many areas of the country it could take a number of years for properties to re-gain the value that was reached at the peak. Many homeowners, regardless of their ability to make their mortgage payment, may become unwilling to wait it out. There are a growing number of proponents of strategic default and foreclosure and many have formulated “how-to” guides. The GSEs have voiced a policy of not lending to the previously foreclosed upon for a period up to five years, however this may seem a reasonable trade-off in an unstable job market where ones credit may already have been significantly damaged by a failure to meet debt obligations. As this economy has continued to devolve to the point where Wall Street and the banks have seemingly continued along unscathed with reckless bailouts and bonuses, it may become increasingly difficult to shame homeowners out of jilting the shameless and simply walking away from their obligation.

Nancy Osborne, ERATE.com Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.