The Homa Files

Excerpted from WSJ, “How to Help People Whose Home Values Are Underwater”, Feldstein, November 18, 2008

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More than 12 million homeowners now have mortgage debt that exceeds the value of their homes.

That gap is typically already very large. Half of the homeowners with negative equity now owe more than 120% of the value of their homes … on average, that’s about $40,000.

If  house prices continue to fall at the current rate for the next 12 months, as experts generally expect, the median loan-to-value ratio of negative-equity homeowners will increase to more than 135%.

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These negative-equity homeowners have an incentive to default because mortgages are generally “no recourse” loans. That means creditors can take the property if the individual defaults, but cannot take other assets or income to make up the difference between the unpaid loan balance and the lower value of the house. As a result, mortgage default rates are now rising rapidly and are expected to go much higher.

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Full article:
http://online.wsj.com/article/SB122697004441035727.html

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This entry was posted on November 20, 2008 at 7:46 am and is filed under Financial Crisis, Mortgage Crisis. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.