Here There and Everywhere

Expat wanderer

One in Four American Mortgages ‘Underwater’

From 24/7 Wall Street on AOL

Underwater Mortgages Hit 11.3 Million

Posted: February 23, 2010 at 7:25 pm

There is a reason that 702 American banks, nearly one in ten, were on the FDIC “problem list” as of the end of 2009. A large number of small and mid-sized banks are burdened with home and commercial mortgages that are in default and may even go into foreclosure.

New data from First American CoreLogic shows why the solution to the problem banks face is so difficult to find. Eleven million, three hundreds thousand homes had underwater mortgages as of the fourth quarter of last year. That number represent 24% of all residential homes loans in America.The mortgage numbers are much worse when homes with equity of less than 5% are included. First American reports that ”an additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity.” That means that three out of ten homes have virtually no financial value to their owners.

The pressure that the home value trouble puts on banks is clear. The aggregate dollar value of negative equity was $801 billion at the end of last year, up $55 billion from $746 billion in Q3 2009. People who believe there is no hope of their homes ever having any economic value are more likely to default on mortgages, especially in an environment where unemployed and under-employed people make up 17% of the total available workforce nationwide. Many homeowners are as concerned about their employment future as they are about the value of their houses.

Problem home loans are concentrated in the regions where real estate values have fallen the most–Arizona, Florida, Nevada, Michigan, and California. First American says that “among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining 45 states.” In other words, the odds are relatively high that some of the home owners in those states will never sell their houses for more than the amount of their mortgages. That creates a vicious cycle in which high numbers of people with underwater loans default in the states where real estate values have dropped the most. There is no easy way to create a foundation under home prices.

The FDIC has closed 20 banks this year, Five of those were in the five states where mortgage equity problems are at their worst. The agency closed 15 banks in December. Of those, five were in Arizona, Florida, Nevada, Michigan, or California. The bank failure and mortgage failure problems area inextricably linked.

The First American numbers do not leave much hope for a home price rebound this year. It is too hard to sell a house with an underwater mortgage because the bank has to be paid the balance of the loan in cash at closing. Many people do not even try make home payments or cannot afford to under those circumstances. The Mortgage Bankers Association reported that a record 15% of American mortgage holders are either in foreclosure or at least one payment behind.

The difficulties that face small and mid-sized banks, which ultimately are a problem for the FDIC, are to a large extent still a fallout of the deteriorating real estate sector. The underwater mortgage problem is still growing and that almost certainly means bank closings will be high again this year as well.

Douglas A. McIntyre

February 24, 2010 Posted by | Building, Community, Family Issues, Financial Issues, Interconnected, Social Issues | Leave a comment

Warrior Woman Does Not Buy a New Car

It’s a beautiful day in Pensacola, I had baby duty all morning, but the afternoon is mine. I’ve been wanting to buy a new car; I could buy it and have it waiting for me when I come back. I know the car I want, the model, the color, everything I want – and do not want. The only thing that holds me back is that I hate the whole car buying process. I remember Saturn – nice car, pretty colors, drove well and you walk in and there is one price, and that is the price for everyone. I don’t know what happened. They stopped making Saturns.

So first, I just decided to see if I could find the place. I found it. Then I decided to drive around the lot and see what they had. I did that. Then I decided just to walk into the lobby and see if they had anything like price sheets there, although I had already done my research online. There was a nice young man waiting outside just for me, and he took me on a test drive. Here is what is really cool. Have you ever driven a car so new that it had one mile on the odometer?

I love the car. I had one like it before. This particular car had some features I didn’t care about and don’t want to pay for.

I know what I want. I know what I want to pay. He showed me figures. I told him what I wanted and what I was willing to pay. He printed out a bunch of stuff so he could explain to me why the car he wanted to sell me was going to cost more. I told him what I wanted and what I was willing to pay for it. He had to go talk to his manager. He came back with more figures. I told him what I wanted and what I was willing to pay for it. He went to get his manager.

I told him what I wanted and what I was willing to pay for it. He said he couldn’t sell me the car at that price, so I smiled and shook everybody’s hands and thanked them for their time and I left, after more discussion. I think they were shocked I walked out. I was shocked too.

And delighted.

“But you still don’t have the car!” my son reminded me.

I know I don’t have the car. It’s OK. I have time. I don’t know if this makes sense to you, but I just feel so good! I didn’t buy a car I didn’t want! I stuck by my guns! I know what I want (and what I don’t want and don’t want to pay for) and what I am willing to pay, and I believe with all my heart I am going to find my car at my price (it’s a reasonable price.) I am so proud of myself for not being talked into buying the car I didn’t want at the price I didn’t want to pay!

February 24, 2010 Posted by | Adventure, Aging, Communication, Customer Service, Family Issues, Financial Issues, Florida, Humor, Living Conditions, Marketing, Shopping | 6 Comments