2010 Aug 6th

Half of All US Mortgages Underwater By 2011?

Deutsche Bank Expects the Worst

A recent article on HousingWire, a blog for the mortgage market, states that Deutsche Bank expects that due to continued declines in home values, 48% of all mortgages in the United States will be under water by the first quarter of 2011 for a total of 25 million homes worth less than the value of the underlying mortgage.  Deutsche expects that a bigger number of prime conforming and jumbo mortgages will be part of the mix.  buried treasure

Of course, this brings up the subject of “strategic default”, or those borrowers who simply choose to walk away from their mortgage even though they might be able to make their payments.   While some borrowers resist strategic default on moral and social grounds, it seems that strategic defaults are higher in the 11 states that are “non-recourse”, that is they do not provide for the lender to go after the borrowers’ other assets after defaulting.  New Jersey is a recourse state.

For more good news, Fannie Mae’s losses reached $1.2 billion in the 2nd quarter of this year, bringing the total U.S. Treasury funding to $84.6 billion.  Fannie said it “does not expect to earn profits in excess of its annual dividend obligation to Treasury for the indefinite future.”  No kidding.

  1. JC

    Strategic Default is a business decision. While it may hurt the community and your neighbor any property owner has the right to choose to walk away and pay the consequences (credit hit, foreclosure consequences, credit limit cut on credit cards, etc).

    Ethically its a grey area but business is business.

    As far as recourse states does anybody know the statute of limitations? 7 years? Even if they do come after you its costly for the bank and you can probably settle for a fraction of a dollar.

  2. homeboken

    Banks have very little capacity to chase down a defaulted borrower and get whole on the loan in question. You are right, there is a large fixed costs associated with pursuing recourse (legal costs to name one) that can often keep a bank from pursuing.

    Having said all of that, virtually no bank will work with an underwater borrower unless they are in default. If you are going to attempt to re-work your underwater loan with a bank, the first thing you need to do is stop paying the debt service. I know it seems contrary but rational thought, but it’s the truth.

  3. JC

    yup, default and it helps to show “financial hardship”. job loss, medical bills, etc

  4. shortsequalmarket

    Good article. Thanks for sharing

    Homeboken the government owns most of the mortgages. Banks only act as processors and are not paid by the government to collect any deficiencies.

  5. carl

    Unfortunately with the mass of foreclosures the stigma and shame of foreclosing is gone. Just blame the government, wall street or some other higher force and walk away. Vote Democrat if you want more of this nanny state ,handout nonsense. If your for personal responsibility and limited help only in cases of true need vote Republican. It’s that simple

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