Some argue that “underwater” borrowers are no different than any other borrowers
been done in the housing markets that saw the biggest boom and in turn the biggest bust.
Home buying in these markets reached a frenzied pace
during the middle of this decade, and that means that a
good portion of buyers purchased homes at the top of
the market. No surprise that they have now sunk
deepest underwater on their mortgages.
A new survey from Zillow.com shows that even in
those markets where investor competition has returned
and prices on the low end are beginning to stabilize,
homeowners still owe far more on their mortgages than
their homes are currently worth.
Las Vegas leads the way with 81.8 percent of borrowers underwater on their loans in the
third quarter of this year, down barely one percent from the second quarter but still up 10
percent from the first quarter.
The bulk of underwater borrowers are in California, Florida, Arizona and Nevada. While
home prices nationwide were down 8.5 percent in September from a year ago, prices in
these states are still way down — 34 percent in Las Vegas, 26 percent in Orlando, 23
percent in Phoenix and 11 percent in Los Angeles (National Association of Realtors).
Again, that’s from a year ago, but many of these cities have seen over 50 percent price
declines from the peak of the market.
Some argue that “underwater” borrowers are no different than any other borrowers, as
long as they continue to make their monthly mortgage payments, and as long as they
continue to want to live in their homes, knowing they will have to wait out the market for
home equity to gradually return.
But the danger is for those that need to sell, or for those who can no longer afford their
monthly payments and don’t qualify for a loan modification.
The government mortgage rescue programs do allow for modifications and refinances on
homes with up to 25 percent negative equity, but many homeowners, especially in the
hardest hit regions, don’t think they will ever see equity again, and therefore see no
reason to continue making payments on their loans, whether they are able to or not.
Many are simply sitting in their homes, rent-free, as banks struggle to catch up and
contact them. Others are vacating the homes, mailing in the keys, and choosing a credit
hit, rather than be strapped to a home that will only ever be a liability.
Home prices are improving, but there is a lot of government stimulus behind that
improvement. The extension and expansion of the home buyer tax credit, as well as
artificially low mortgage rates backed by the Federal Reserve’s purchase of GSE loans
and securities, will all expire by the middle of 2010, so it remains to be seen whether the
very tenuous recovery we are now seeing in housing can endure on its own.
As foreclosures and unemployment continue to rise, the potential for a double dip in
home prices is very real, and borrowers underwater now will only sink deeper.
Days on Market is still shrinking
The Twin Cities housing market continues to post strong pending sales figures as fall progresses. For the week ending October 31, there were 826 pending sales. That’s down from the week before but 42.9 percent greater than the same week last year.
The extension and expansion of the tax credit means that first-time home buyer activity will remain strong, but don’t bank on the same blockbuster numbers we have seen this year. If you were a potential first-time buyer who was qualified to purchase in 2009, odds are good that you already bought. The fact that the income limits have been raised for eligibility does help since it widens the credit’s availability.
The $6,500 credit for second-time buyers will spur some sellers to put their homes on the market who had previously been on the fence. New listings will likely strengthen this winter and into early 2010 as a result.
Some updated numbers for this month:
- Days on Market is still shrinking, down to 128. That’s 9.4 percent below last October.
- The Percent of Original List Price Received at Sale bumped up to 94.6.
The Housing Affordability Index increased to 202, up 25.5 percent over 2008.
“You will be caught, you will be prosecuted, and you will be sentenced to significant jail time,”
The former part-owner of one of Northeast Florida’s biggest home builders has been indicted in a sweeping federal investigation of mortgage fraud.
Federal prosecutors allege Craig Scott, who was an owner of American Homebuilders Inc., took part in a conspiracy that promised prospective buyers they would be paid up to $100,000 by “rebates” or kickbacks coming from part of a Realtor’s commission and payments from the builder, according to an indictment.
The indictment contends the conspirators did not disclose the payments to lenders, but instead sought to “trick and deceive mortgage lenders” by inflating the sales price of homes on sales and purchase agreements. That resulted in lenders providing bigger loans than they otherwise would have, the indictment contends.
U.S. Attorney A. Brian Albritton announced Wednesday that about 100 people are being prosecuted after an intensive, nine-month investigation of mortgage fraud in the Middle District of Florida, spanning the metropolitan areas of Jacksonville, Orlando, Tampa and Fort Myers.
In the Jacksonville area, the investigation resulted in indictments of 24 people in connection with at least $244 million in loan amounts for 200 pieces of property, Albritton said.
The people indicted worked during the housing boom in positions such as small business banker, title company employee and owner, mortgage broker, mortgage banker, employee of a real estate development company, real estate agent, real estate investor, title and closing agent, and real estate appraiser.
“All the people in the real estate industry knew what they were doing,” said Jim Casey, special agent in charge for the FBI.
American Homebuilders Inc. filed for Chapter 11 bankruptcy protection in July. According to bankruptcy court filings, American Homebuilders was founded in 1992 and generated almost $40 million in sales during the peak of the real estate boom in early to mid-2005. After the real estate market crash, sales of lots and homes “dried up virtually overnight” and left the business unable to pay its debts.
The indictment against Scott contends that from mid-2006 through March 2008, he took part in a conspiracy with First Trust Realty Corp. owner Jean Tan Jones, mortgage broker Fe V. Tan, and real estate agent Jeffrey Rubin, who was a sales representative for American Homebuilders. All are Jacksonville residents, according to the indictments.
Scott left American Homebuilders in 2008, according to bankruptcy court filings.
Albritton said Florida has been “ground zero for mortgage fraud.” He said investigators from federal and state agencies built their cases after foreclosures revealed signs of mortgage fraud.
“You will be caught, you will be prosecuted, and you will be sentenced to significant jail time,” Albritton said at a news conference in the federal courthouse in Jacksonville.
