$3 trillion in mortgages could be underwater by the end of the year

[ozymandius]

Borrowers Abandon Mortgages as Prices Drop

As home prices plummet, growing numbers of borrowers are winding up owing more on their homes than the homes are worth, raising concerns that a new group of homeowners -- those who can afford to pay their mortgages but have decided not to -- are starting to walk away from their homes.
.....

Other borrowers are walking away in frustration because they can't arrange a workout with their lenders, says D.J. Enga, director of outreach services for Auriton Solutions, which counsels homeowners nationwide. Mr. Enga expects that 10% to 15% of the roughly 4,000 callers counseled this month by Auriton, of St. Paul, Minn., will walk away from their mortgages.
.....

Goldman Sachs economists estimate that as much as $3 trillion in mortgages could be underwater by the end of the year, leaving 30% of the country's outstanding mortgages in negative equity. Since there is roughly $1 trillion in subprime mortgages outstanding, that means a large amount of better-quality mortgages, such as prime and Alt-A -- a category between prime and subprime -- will be attached to negative equity.
.....

Some financial advisers are even encouraging homeowners who are upside down to consider foreclosure, which they see as a purely financial decision with limited negative consequences. YouWalkAway.com, a Web site started in January that offers foreclosure counseling to homeowners, advises that borrowers who default on one mortgage can typically get another mortgage between two and four years after a foreclosure. Then, "before you know it, you will have this behind you and a fresh start!" the site says.

http://online.wsj.com/article/SB120424677934501611.html?mod=hps_us_whats_news

[Yael]

1. That is the largest estimate I have seen to date

and that number is really REALLY ugly.

Yikes!

[OhioChick]

2. Speechless....... n/t

[indepat]

3. Greenspan's stamp of approval (blessing) of junior's extremely reckless fiscal policies and

unfair tax policies led to extremely reckless monetary policies which encouraged extremely reckless lending practices fueled by greed which fueled spiraling real estate prices, all creating the mother of all housing bubbles. I'm betting Greenspan is a name that will forevermore live in infamy. :D

[Warpy]

4. So far, housing prices are sliding, not plummeting

except in a few select markets that saw a huge bubble. The overall decrease for the nation is still in single digits.

[sepulveda]

5. which is positive AND negative

it's a tremendous plus for future home buyers

supply and demand rule markets

the more, and more quickly homes get dumped on the market, the better it is for BUYERS

...

not so much for sellers though

[bbinacan]

6. I have a hard time feeling sorry

for these foolish borrowers. They over leveraged themselves. And don't give me this crap about it being the lender's fault. Your net income is X and your expenditures are Y. The math is easy.

[Mojorabbit]

8. It isn't that easy

my older sister is married to an electrician who owns his own small business and they had been doing well for a long time with the housing boom. Now business has dried up, their house has been up for sale for over a year and the value has dropped below what they owe in a years time. People who have wanted to buy their house cannot get approval for a loan cause the banks are not lending.
Lots of people who could afford their mortgages now can't. It is rippling down. Just because your income was good last year, doesn't mean it will be this year in this economy.

[bbinacan]

10. You make a good point but,

if your income is cyclical in nature, you should plan accordingly. I know from experience. I became an AVP at a major investment firm, was making good money, bought a BMW, and the market tanked along with my income. I ran up 40k in credit card debt. I didn't blame anyone but myself. I sucked it up, entered a debt management program and have about a year and 3 months until it's paid off. I also changed careers to one I've come to love. And, as a result, I'm in the best financial shape of my life.

I hate all this "I'm the victim attitude". Take some personal responsibility for crying out loud.

[Mojorabbit]

12. True

if the business is cyclical in nature but as an electrician, this is the first time in twenty years that business has dried up for him. I know when we bought this house we knew nothing about the process and hubby and I are pretty well educated... just not in home finance. Luckily my father helped us through the paperwork.

[ozymandius]

9. Speculators were caught. Genuine home shopping buyers were caught.

I was almost one of those buyers. We were offered a 30-year fixed mortgage at 6.26% interest with $0 down. Sounds too good to be true? Not so. But the program we were offered severely limited how much we could borrow. Limited, in fact, to the point of being pointless to look for a dwelling in a stupidly exaggerated area for price. If we had opted for one of those Grandpa Greenspan's recommended ARMs then our loan amount would have been much higher - enough to buy something in our area worth considering.

Of course that would have meant that the monthly payment would balloon. Knowledge and foresight kept me from going down that road. Sadly, knowledge of macroeconomics and the ability to read amortization tables are not common hobbies among the homeowner class. I do not blame every buyer for suffering from our current predicament defined by balloon triggers (due to slight monthly overpayment) on a previously fixed-rate mortgage and their inability to read documents written in language that is germane only to mortgage professionals.

[bbinacan]

11. It sounds like you did the smart thing.

As to the "victims", I recall the expression that "ignorance of the law is no excuse".

[conflictgirl]

13. A lot of jobs have been lost and were replaced by worse ones

At the time that we bought our house 3 years ago (fixed FHA loan, 3% down) our house payment was between 1/4 and 1/3 of our income. We had no other significant debt. Then my husband lost his job and was unemployed for 10 months. During that time of unemployment we had to get some credit cards to help us get through once our savings was gone. When he finally found a job, it paid $1.50/hr above minimum wage...needless to say that was a HUGE drop from what he was earning before. Now his wages have inched back up a little, but are still about 40% below what they were when we bought the house. Our house payment is now abou 60% of our income. Meanwhile our property taxes have increased (they're rolled into our house payment) so our house payment is almost $100/month higher, our utility bills have increased by about $50/month, our gas costs for our two older, fuel-efficient cars have gone up by about $100/month total. I don't blame the lender for our situation, nor do I really blame myself - unless you want to figure that I should have known that the FHA program was not requiring a large enough down payment or that my husband would be unemployed for 10 months. But plenty of responsible people are getting caught up in this housing mess too.

[leftofthedial]

7. a second invasion and occupation of Iraq

[phantom power]

14. a trillion here ,a trillion there. pretty soon you're talking real money.

I think I'm going to hurl.
:puke:

[abelenkpe]

15. Isn't that the same as the cost of the Iraq war? nt