Economix Blog: Counting the Underwater Homeowners

Analysts have been celebrating various pieces of good economic news, including an uptick in consumer spending. But the housing hangover is still raging.

At the end of the third quarter, 10.7 million homeowners owed more on their mortgages than their home is worth, according to new data from CoreLogic. That is down but a smidgen from the second quarter, when 10.9 million homeowners were underwater. But it is still more than one in every five mortgages.

Those homeowners may continue to pay their note, but those who suffer a shock like job loss or illness are at a high risk of foreclosure because they are unable to downsize by selling. Some conservative economists have suggested that the housing market be left to heal itself, while liberals and, increasingly, centrists have warned that failure to intervene will severely restrict the economy’s ability to grow.

The 200,000 decrease did not represent homeowners whose home values suddenly recovered, but people who lost their homes. They were easy to find in a report on household debt by the New York Federal Reserve, which found that 264,000 people had a foreclosure noted in their credit report in the third quarter. The total of seriously delinquent mortgages increased for the first time since the third quarter of 2009.

Underwater, or negative equity, mortgages continued to be heavily concentrated in certain states. For the first time, Georgia, with 30 percent of its mortgages underwater, edged out California for a place in the top five states. No. 1 was Nevada, with more than half its homeowners owing more than the value of their property. Still, outside the top five states, 17.6 percent of homeowners over all are in that predicament.

Forty-five percent of borrowers have less than 20 percent equity in their homes, and almost 70 percent of those mortgages carry interest rates above 5 percent, while the current average rate for a 30-year loan is closer to 4 percent. Recent changes to Fannie Mae and Freddie Mac’s refinancing programs are supposed to make it easier for those homeowners, who number about 15 million, to lower their monthly payments.

Article source: http://feeds.nytimes.com/click.phdo?i=0f0d9f4190495ee9ebb0a616f0b46ce7