Housing Market Brings More Underwater Mortgages

By: Gerald Greene

A record level of foreclosures is sweeping across America as the downward spiral in the real estate housing market continues. As prices fall more and more homeowners are finding themselves underwater. That is they owe more on the mortgages then the properties will bring if sold. This downward spiral feeds on itself as foreclosed homes in large numbers place additional downward pressure on prices. With the overall economy weakening it is a vicious cycle that is difficult to reverse.

The real estate market may be flooded with foreclosures, but those properties are tied-up in legal proceedings and auction sales and it may be months before they can be sold or placed into rental property status, if at all. This places a tighter squeeze on the rental property market, where renters may find their rents rising at lease renewal time beyond what they can afford to pay. A flood of homeowners moving from homes in foreclosure proceedings and moving into rental homes places upward pressure on rental property rates.

In addition to home owners who are losing their homes to foreclosure lenders are generally take big hits on foreclosed houses. Not only do the foreclosed homes generally bring less in a sale than the amount of the mortgages owed but the cost of maintaining a home and keeping it in good shape while empty falls upon the lender. Most lenders just do not have the in house resources to be good property managers.

Vacant homes become eyesores in their communities and are often vandalized and have expensive to replace items stolen from them, like copper wiring and plumbing and kitchen equipment. In some cases squatters invade the homes and can be difficult and expensive to remove. A deteriorating housing market brings a lot of cost to everyone involved with housing including home owners, lenders, and local communities that experience a decline in their tax base.

Lenders do not generally build the homes they are giving out loans for. So while 0 percent mortgages sounds pretty appealing to most potential borrowers (heck it sounds pretty appealing to me), I assume the lenders are not in love with the concept since they would quickly go out of business. Lenders must wait at least 90 days after a borrower defaults on a loan before initiating foreclosure proceedings. Lenders must also warn homeowners at least 45 days in advance that they are initiating foreclosure actions.

Recently, it was reported that prices of single-family homes were down 14.4 percent in March 2008, compared with March 2007. This downward trend has accelerated since then. Moreover, in an eye-catching combo of celebrity gossip and real estate news, TV personality Ed McMahon is in danger of losing his Beverly Hills estate to foreclosure. Good old Ed probably took out too much equity from his almost $5,000,000 home as the price was increasing and now can't service his mortgage payments as prices fall. This appears to be a sad high profile case of being underwater with a mortgage.

Loan modifications are used when homeowners want to save their home from foreclosure and have the financial means to get back on track with delinquent payments. Short sales are used when the homeowner does not have the ability to become current on payments. Loan officers, attorneys, or other people handle many details, but the real estate agent must ensure that they are properly carried out.

Homeowners should remember that it is in the best interest of the lender to find a solution to a mortgage payment problem instead of proceeding with foreclosure proceedings so a home owner in mortgage trouble should make every effort to work with the lender to try to find some solution. Even if you are underwater with your home mortgage it would be a mistake to cut off communications with your lender.

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