UNDERWATER MORTGAGES

The government has attempted to help out homeowners struggling with underwater mortgages in the past, but so far, there hasn’t been much success with the FHASecure or Hope for Homeowners programs. Though the number of underwater mortgages in the U.S. has decreased since March, it’s been due to an increase in foreclosures, not home values. That’s why a new option has just been set in motion, known as the FHA Short Refinance program.

Homeowners Walking Away from Underwater Mortgages

If abandoning your mortgage loan and turning in the keys to your home has been on your mind lately then join the ranks of over one-third of homeowners in America. According to a survey recently conducted by the Pew Research Center, 36 percent of homeowners believe it’s acceptable to stop paying a mortgage and walk away from a home if the circumstances call for it.

Circumstances That Warrant Walking Away

If you’ve been excited by the incredibly low mortgage interest rates we’ve witnessed for the past few months, you’re not alone. Consumers and housing experts alike have been amazed by these rates, which to date are the lowest on record.

However, while everyone is marveling at mortgage rates, no one’s really doing anything to take advantage of them, as evidenced by record-low home sales. So why on Earth is no one jumping on them when they’re going to start climbing again sooner or later?

If you’re suffering from an underwater mortgage but continue to make all of your payments on time, the FHA may be able to bail you out. The administration is offering a refinancing option that could help homeowners whose home values have dropped far below their loan amounts via a new program.

The FHA Short Refinance Option

Everyone knows that home values are plummeting all over the nation. Foreclosure rates have skyrocketed and people are walking away from their homes as a result. People are choosing to hand over the keys on their over-priced homes – especially when they’re underwater mortgages – and leaving banks to clean up the mess and take the losses. It’s not just homes in middle-class or lower-middle class neighborhoods, either – decaying foreclosed homes are now a common sight in those expensive exurb developments that sprouted up in just about every state in the nation. But what most people don’t realize is that now even the banks are walking away from foreclosed homes, because they’ve lost so much value that they’re simply not interested in repossessing them and trying to resell them at losses. Instead, banks are canceling foreclosed home auctions and handing the keys back to surprised owners.

Bank walkaways are nothing new, but have always been exceedingly rare. Nowadays, however, the bottom just keeps falling out on the housing market in many parts of the nation. This is especially true in older, poorer neighborhoods which saw home values rise somewhat with the speculative bubble, but were the first to plummet when the bubble burst. In fact, the decline in property values in these communities predates the current real estate collapse, and in hindsight might even be seen as early warning signs that the boom times were about to come to a crashing halt. A few years ago, lending giant Fannie Mae even attempted to slow the bleeding by offering homeowners in foreclosure rental options.

A new report shows that existing sales sank 27.2 percent in July, which is the biggest one-month drop ever. According to the National Association of Realtors (NAR), this percentage represented a seasonally-adjusted annual rate drop to 3.83 million sales from 5.26 million the month before.

The Market Continues to Lose Sales

When it comes to the housing market, two things get talked about regularly: the bottom and a recovery. However, these two terms mean very different things and don’t occur at the same time.

Some have predicted that we have yet to see a housing bottom, while others say we may have hit the bottom and a recovery is on the way. It’s possible, however, that a recovery may not occur at all. Let’s take a look at why this may be the case.

Zillow.com, a popular real estate website, has reported that 21.5 percent of borrowers with a mortgage loan owe more than their homes are worth. However, this high number of underwater mortgages is still lower than what was found in the previous quarter, when 23.3 percent of loans had an underwater status.

Since an underwater mortgage is a prime predictor of foreclosure, this number is closely watched. Unfortunately, in this case, the reason that the number of underwater mortgages have dropped is mostly due to homeowners already having lost their homes to foreclosure. However, in some markets, residents have been helped by dropping home prices which have narrowed the gap between what they owe and how much the home is worth (CNN Money).

In a housing market where homeowners are battling or fearing underwater mortgages, homes in the Gulf of Mexico may have more to fear than oil-soaked waters. According to a new report released by real estate data provider CoreLogic, homeowners should also fear $68 million in lost property value over the next year—and possibly $3 billion over the next five years—as a result of the BP oil spill.

The report showed that Mississippi beachfront homes could see loss as high as $56,000 per home. This means anyone living in one of the 71,000 homes affected who tries to relinquish their mortgage loan could have a difficult time selling (CNN Money).

Defaulting on a mortgage loan occurs when a homeowner fails to make payments in full and on time. There are usually serious repercussions that result from the homeowner’s default. The exact consequences may vary in time frame and extremity depending on the mortgage lender involved.

How Can a Homeowner Default on a Loan?