Nearly one in four home mortgages are burdening borrowers with negative equity, an article by the Wall Street Journal reports.
Underwater mortgages find homeowners with declining home values to the point that they owe more on their mortgages than the home is worth.
The situation has hit new homeowners in the past few years, especially those who were paying interest-only mortgages as their home values declined.
However, this is no longer the case, as a whopping 23% of all home mortgages—10.7 million households— are underwater, according to real estate information company First American CoreLogic.
5.3 million of those homes are tied to mortgages worth least 20% more than the home's value.
The hardest hit states include Florida, Arizona and Nevada, where 65% of mortgages have negative equity—nearly three times the national average.
Negative equity can become a financial disaster for homeowners, especially if it means turning down a promotion or job transfer because they cannot sell their home.
The underwater crisis is intimately tied to foreclosures (a category also led by Nevada), as rising foreclosure rates can cause neighboring homes to lose value, and as some homeowners choose to simply stop paying on underwater mortgages, known as strategic default.
An estimated 588,000 borrowers defaulted on mortgages last year even though they could afford to pay, double the amount from 2007.
Tags: equity, foreclosure, mortgages, Nevada
This entry was posted on Tuesday, November 24th, 2009 at 4:31 pm and is filed under Mortgage Foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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