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28.4% of mortgages underwater.

By: Moe Lane (Diary)  |  May 10th, 2011 at 01:00 PM  | 

RESIZE: AAA

Note that this article doesn’t quite get the original report right, sort-of kind-of thank goodness; it confuses mortgage holders with homeowners when reporting the percentage of underwater mortgages (mortgages where the holders owe more on a piece of real estate than the real estate is actually worth).  In other words, 28.4% of homeowners with mortgages have underwater ones, not 28.4% of all homes.

This should be only mildly comforting, given that being told that over 28% of mortgage holders might be better off just abandoning their loans* is not exactly good news.  It is, in fact, fairly frightening and disastrous news.  It means that a key feature of many Americans’ retirement strategies – the accumulation of real estate equity for later use – has been effectively gut-shot, and is now messily expiring in a ditch.  It means that our economic recovery is going to continue to be hobbled by a housing market that has not yet hit bottom.  It means that growing consumer confidence will still be constrained by what is a generally rotten and widespread structural problem.

But it’s not the absolute Armageddon promised by the Bloomberg headline.

[pause]

Yay?

Moe Lane (crosspost)

*I don’t recommend defaulting on an underwater mortgage: after all, I’m paying mine.  But we’re starting to get to the point where we’re relying on the essential willingness of the American people to play by the rules even when it hurts them. It’s not at that point – yet; the hassles of going bankrupt (or simply walking away and throwing the bank the keys) are still more or less worse than the hassles of paying too much on your mortgage every month.  But when that changes… well.  It is not going to be pretty.

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  • sandbun
  • peg_c

    even though the enemedia will persist in portraying him as a shoe-in. There is no turning around this mortgage disaster any time soon – but if a business-friendly Republican comes into office in Jan. 2013 I think this moribund economy will take off like a rocket.

  • drfredc

    If the nation’s first Blue President were really interested in helping out the Red private sector house and building market instead of padding blue pocketbooks, he’d have proposed that all home maintenance was tax deductible.

    This would kick start the home building and maintenance industry that is not just stuck in neutral, but sliding downhill with a broken handbrake… Getting this huge segment back to work and off funemployment would quickly get folks back to work in all sorts of private sector industries.

    Go figure, this simple Red solution hasn’t been proposed by the Nation’s first Blue President… No surprise nothing like it’s never been mentioned by the GOP LOSERship… They know how to horse trade for favors, but pushing simple creative ideas, not so much…

  • acat

    are in line behind the UAW (but probably in front of the UMWA) waiting for a handout….

    “Sure, you can deduct 10% of the cost of any improvement made on your property every year for 10 years – provided it’s done by union workers…”

    Mew

  • http://pocketchangeproductions.net/ anotherindyfilmguy

    Home ownership purchasing costs were inflated by several reasons, most of them dealing with greed and some of them from artificially inflating the market prices via federally insuring loans through programs that made mortgages a win-win for mortgage companies through no loss guarantees on defaults meaning that loans would be written that should not have been etc.

    Sort of like, in principal, how the student loan programs that were meant to “help” students get a degree they could not otherwise afford ended up in allowing universities to jack up prices all around at a rate higher than inflation to the point where the cost of “higher education” has skyrocketed beyond the reach of most without student loan assistance etc…

    Expect more fraud at all levels, whether it’s the homeowner trying to either keep their home or at least not be totally hosed when moving to mortgage lenders who need to write loans but can’t because of the collapse finding new ways around the system.

    Personally I’m surprised to not hear if there is a spike in bankruptcies where people could throw off their mortgages totally or rewrite them significantly under threat of going to bankruptcy court.

  • Adjoran

    Now, those who bought or refinanced at the height of the bubble are probably screwed, as it will be a long time before prices can recover: we’ll have to finish the foreclosures and work down the huge inventory of existing homes before prices can really begin to rise.

    But just being “underwater” itself isn’t necessarily the end of the world. You don’t realize the loss until you sell, refinance, or abandon the home. In the meantime, you do get the use of the house. So for most, it really depends how far “underwater” they are.

    Unfortunately, we need to shrink the buyers’ pool back to the creditworthy only, which will mean it will take even longer for housing to recover. But easy credit for deadbeats, promoted and subsidized by the federal government (THANKS, Dodd, Frank, and Clinton), is largely responsible for the whole mess as shaky mortgages infiltrated what were once solid securities. We need to start by changing those regs, and shutting down Fannie Mae and Freddie Mac altogether.

  • williamjameson

    Thanks to liberals thinking we can loan money on a signature and trusting gov can flaot the notes, we now have another looming crisis.

    This was predicted in 2008 that by 2011 to 2012 we’d see more mortgage failures. As well commercial and industrials aren’t doing good either.

    Obama Obstructed Banking Reform in 2005. Maybe its time for the press to ask him why he voted against reform? Remember when Obama said he made a mistake not voting for raising the debt limit? Hit Obama with the question and use this against him in 2012.

  • sandbun

    It sounds like the federal govt interfering with the free market. So now instead of taking a vacation a family takes advantage of the tax break and remodels. That’s a great deal for the construction works, not so great for any other industry that otherwise would’ve received that family’s money.