There’s hardly a homeowner out there who doesn't cringe at the thought of how far their home's value has sunk over the past year. But for those who find that they owe their mortgage lender more than their home is actually worth, things can get especially painful.
Folks with these "underwater" mortgages who are already having trouble making their payments may feel as if they have nowhere to turn. Pending mortgage rate resets, mounting debt and eventual foreclosure seems inevitable.
That's largely because despite well-publicized efforts on both the federal and, in some cases, state level to help homeowners facing mortgage rate resets, no aid is being extended to those whose homes have negative equity.
But while conventional "exit" options — selling the home or refinancing into an affordable mortgage — seem difficult or downright impossible when you're "underwater" on your mortgage, many banks are now offering solutions that help homeowners do just that.
The exact number of folks with negative equity is hard to determine, but the figure could easily exceed one million. A study by FirstAmerican CoreLogic, a real estate data analysis firm, estimates that 11% of homes purchased between 2004 and 2006 (not only the peak of the housing market, but also the period during which most no-money-down loans were issued) are currently underwater. Needless to say, that percentage will only grow larger should housing values continue to fall.
The good news is that lenders are becoming increasingly willing to help these homeowners avoid foreclosure. That should continue to be the case, as long as the high number of foreclosures continues to leave banks with a glut of repossessed homes, which is an expensive proposition: Not only do the lenders suffer losses on the loans for these homes, but they have to maintain and market them to potential buyers, as well.
"You'll see more and more lenders helping people stay in their homes over the long run," says Todd Mark, a vice president of education at Consumer Credit Counseling Service of Greater Dallas, a HUD-approved housing counseling organization.