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Rising Foreclosures Give New Meaning to the Term "Underwater"

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By : Leticia Carvalho    99 or more times read
Sudden declines in home prices face the real estate industry, as a by-product of the increase in the number of foreclosure homes flooding the market. Prices have dropped tremendously, and in some cases down to half of what existing homes are originally worth. This resulted to an increase of “underwater” homeowners, or those whose mortgage balances are now higher than what their homes are currently worth.

Being underwater is one of the imminent signs for foreclosures. However, some experts say that it does not necessarily mean that homeowners will default on their mortgage payments and their homes ending up in foreclosure. Although this may not be a national trend, it was proven true for some states that previously encountered a similar increase in underwater homeowners. Studies conducted on 1991 on more than 100,000 Massachusetts-based underwater homeowners showed only 6.4% fell short and lost their homes.

Homeowners that did not lose their homes to foreclosures simply did not give up paying for their mortgage loans, relying on hopes that home prices would eventually recover and the value of their homes brought back to normal. Those who lost their homes were either entirely incapable of paying for their loan amortizations, or just stopped paying their installments seeing that there is no hope for recovery in the value of their homes.

With the number of unemployment cases in the rise and the economy still in shambles, economists project that approximately 8% of underwater homeowners can lose their homes to foreclosures in the couple of years to come. These concerns prompted federal officials to formulate new recovery programs for these beleaguered homeowners. Some banks and financial institutions are also offering new mortgage terms for these desperate homeowners.

Some experts advise underwater homeowners to continue making their loan payments and try to avoid ending up with a foreclosed homes. Homeowners with low-interest fixed-rate loans are encouraged to stick with reducing their mortgage while making these payments.
Leticia Carvalho has been educated in the finer points of the foreclosure market over 5 years.

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