The high level of foreclosed properties, including VA foreclosure homes, has been considered one of the major factors preventing the U.S. from staging a much needed economic recovery. However, economists have lately identified another aspect of the housing market problem that might be pulling down the economy more than foreclosure does.
According to some economists, homeowners who continue to pay underwater mortgages might be hindering the nation's economic recovery more so than the thousands of foreclosed properties found in hardest hit areas like Nevada, Florida and California, where Fresno foreclosure listings and other types of foreclosures continue to expand.
As an example, in the state of California, more than 670,000 loans are underwater. Consumers who own these mortgages are paying amounts that are higher than the worth of their homes. This setup, economists stated, weigh down the economy more than the number of properties under California foreclosure property listings.
Most Americans will probably think that continuously paying mortgages, even though they are underwater, would help the economy more than losing properties to bank and VA foreclosure homes. However, economists stated that the problem is that the money being paid for these underwater mortgages is taking funds away from consumer spending, which in turn weighs down the economy of the country.
Like the problem of foreclosed homes list, underwater loans continue to persist in various regions of the U.S. About 15 million borrowers are believed to own underwater loans, with over 7% owing a quarter more than what their homes are worth. In California alone, over 50% of borrowers are estimated to be paying mortgages that are more expensive than their residences.
Underwater mortgages in the largest real property markets, which include California, Florida and Illinois, have average negative loan equity of $107,000. In addition, these borrowers are paying an interest rate that is higher than the current 4.25% average. They are unable to get their loans refinanced primarily because of the amount they owe.
Although it seemed surprising to consider loan payment a bigger economic drag than bank and VA foreclosure homes, economists stated that paying for a loan that is higher than a property's worth will inevitably hit consumer spending and consequently, the national economy.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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