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Foreclosure Listings Push Down Prices, Borrowers Underwater



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By : John Cutts    99 or more times read
The number of underwater U.S. homeowners soared to 20.4 million in the first quarter largely due to price declines in foreclosure lists, according to real estate monitoring site Zillow.com.

The first quarter figure marked an increase from the 16.3 million underwater borrowers in last year’s fourth quarter and represent 21.9 percent of all U.S. homeowners, an increase of 17.6 percent from the fourth quarter of 2008.

Housing analysts said that underwater homeowners represent another challenge that need to be addressed by the Obama administration’s foreclosure prevention program. While the increase in underwater borrowers are pushing down prices in foreclosure listings and making foreclosed homes more affordable to lower-income buyers, the declining home prices are preventing distressed homeowners to refinance their loans or to get approvals for short sales to avoid foreclosure.

The loan refinancing scheme of President Obama’s program benefit only homeowners whose mortgage loans are guaranteed by Fannie Mae or Freddie Mac and whose loan amounts are not higher than 105 percent of the value of their homes.

In response to the concern, James Lockhart, head of the Federal Housing Finance Agency that regulates Fannie Mae and Freddie Mac, said federal officials are looking at increasing the limit.

Stan Humphries, a vice president at Zillow.com, said no market has made a recovery from underwater problems, and instead there are additional markets, such as Dallas, where low prices in foreclosure listings are increasing the number of underwater borrowers.

Housing economist Thomas Lawler added that underwater borrowers whose loans are 30 percent more than the value of their homes are likely to abandon their homes to foreclosure listings than borrowers whose loans are just 10 percent more than the value of their homes.

According to data from First American CoreLogic, more than 1 in 10 mortgage borrowers owed 110 percent or more of the value of their homes in December 2008.

Nevertheless, according to the National Association of Realtors, the index of pending home sales or sales contracts has increased by 3.2 percent in March.

Estimates of the number underwater borrowers vary, as researchers differ in their assumptions and in their estimates of home prices and mortgage loans. Sometimes, homes already in foreclosure listings are still included in underwater counts.

The chairperson of the University of California’s Fisher Center for Real Estate and Urban Economics, Kenneth Rosen, said that underwater estimates can become too high if the home price data includes the prices of a significant number of homes already in foreclosure listings, which are priced at a discount.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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