Mortgages Blog

Finance Blogs » Mortgages Blog » Housing crisis could worsen

Housing crisis could worsen

By Polyana da Costa ·
Wednesday, May 18, 2011
Posted: 10 am ET

The foreclosure crisis is far from over and the situation could worsen if home prices continue to decline, according to data from a housing and mortgage trends report released by the real estate and financial information firm CoreLogic.

Nearly one in four borrowers, or 11 million people, owes more on their mortgage than what their home is worth, according to the report. Together, these borrowers have $750 billion in negative equity. Of that total, $60 billion is in the process of foreclosure.

That means the majority of underwater borrowers have stayed current on their mortgages.

But the likelihood that these borrowers will end up defaulting is increasing as home prices continue to decline and homeowners are unable to refinance or modify their loans.

"Price movements have large impacts on new delinquencies and prices are currently declining," the report says.

Once an underwater borrower falls behind on payments and is 90 days or more past due, the chances of bringing that loan current are slim.

CoreLogic tracks the "seriously delinquent transition rate," or the rate at which loans that are 90 days delinquent transition into a more severe delinquency level, rather than being resolved.

In 2008/2009 the seriously delinquent transition rate reached 71 percent. The rate dropped in mid-2009 as the volume of loan modifications increased but CoreLogic says the rate is beginning to spike again in cases where borrowers are deeply underwater.

"The impact of modifications is beginning to fade and moving forward, the unresolved question is will transition rates revert back to the pre-modification levels?" questions the report.

It seems like it. Seriously delinquent transition rates have been increasing when the borrower is underwater or has less than 20 percent equity in the home, according to CoreLogic.

In 2010, about 39 percent of loans were originated with a down payment of less than 20 percent, the report shows.

Regulators recently proposed a rule that would require lenders to keep a 5 percent stake in a mortgage loan when they sell the loan. Loans that meet certain requirements, including a proposed 20 percent down payment, would be considered a Qualified Residential Mortgage and be exempt from the rule.

But at this point, a 20 percent or even 10 percent down payment regulation could devastate the housing market.

"While clearly higher down payments are necessary and will reduce longer-term risk, using the consensus 20 percent down payment scenario, will lead to more sluggish sales in some states in the short-term," according to the report.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
July 07, 2011 at 6:36 pm

First of all strategic foreclosures are catching up with foreclosures. What that means Ken, is that your friends and neighbors are deliberately going into foreclosure because they owe more then the property is worth. Yip..a lot of well off financially people out their are doing it!! So shame on you for assuming all foreclosures are due to people buying too much house! Ignorant people like you need to get educated!! Secondly, the Banksters bundled up these loans, sold them on Wall Street, and investors now own the note and other real estate documents on these properties. "LEGALLY" these Banksters do not have the right, in certain states, to modify a loan, it is owned by the pool of investors. GET IT!! The lender gave up any rights the minute they closed escrow, and got paid for the mortgage! Sooo, that is why so many class action law suites are going on, and homeowners in foreclosure are winning!! Oh, did you forget to mention that!! Yes winning, and these Banksters are trying to cover this up by passing senate bill after senate bill to stop "the people " from winning against the fraud the Banksters have committed. Do your homework buddy before posting stupid comments like yours!!
responsible for the whole economic meltdown not the homeowners

July 05, 2011 at 8:25 pm

Come on Mike,

What we need is for people who bought too much home, sell and face the consequences. Maybe they can't buy another home for 7 years. Maybe things will be tough because they were forced into bankrupcy. Maybe they have to rent in a not so desireable neighborhood. Maybe once they are required to face the music for their actions, the next time they will buy a house they can afford.

Rose Gold
July 05, 2011 at 7:02 pm

I own my home. I bought an older home for a reasonable (read affordable) price in a poor neighborhood which has a great location and scenic views in the city, and put a ton of sweat equity into the property. The neighborhood has older housing stock that hasn't been well maintained, and a populace that was fleeing the city to the suburbs at any price while the bubble was building. This made the neighborhood a target for flippers and slumlords who jacked the local property values through the roof and then walked away with pockets full of money as everything unravelled. The outcome of this is empty buildings in need of maintenance, repair, or demolition, a neighborhood whose population went from working class to poverty, and an increase in crime and drugs. The fight to keep values inflated to help those who are in over their heads also continues to hurt neighborhoods like mine which could be revitalized by people looking for properties they can afford. The inflated values of local properties, along with the problems brought about by the bubble, continue to send those potential buyers elsewhere. Likewise, people like myself who could afford to "move up" aren't going to because the values of those potential properties continues to be inflated. By preventing property values from finding the new normal, the pain drags out and the economy does ultimately become stuck. Maintaining the fantasy that current values are true and correct prevents any potential upside of the reality of lower values from becoming a positive force. I'm lucky that I've always considered my home to be a place to live rather than an investment. If others had done this, we wouldn't be in the mess we're in. But banks made the same mistake and to some degree, continue to cling to the strategy rather than accept the error, face the music, and move on. That is what will keep this country mired in misery for many years to come.

June 21, 2011 at 5:50 pm

People bought houses they couldn't afford. My friends bought a 700k house on a firefighter and teacher salary. That is insane and they had no business buying that house.

People need to stop buying things they can't afford and learn to live with less. And yes, those who were greedy and got in too much debt SHOULD have to suffer for their mistakes. We can't be a nation of irresponsible kids maxing out the national credit card any more.

May 24, 2011 at 9:17 pm

toe mike amen toe that.

May 19, 2011 at 3:57 pm

What is needed is a "no questions asked" easy-payments and easy-term loan modification for homeowners that occupy their homes as a principal residence, and can prove that. The lenders gave these people loans at one time, why should a homeowner later need to prove they are solvent during a time of depression level unemployment?

Foreclosures are too costly for society. When the banks choose to foreclose, instead of to modify, it makes me wonder
a) why are shareholders not suing for better fiduciary responsibility from their boards of directors and managers?
b) why are the costs of foreclosure subsidized by tax write offs or direct government bailouts so much so that a loan modification is not as profitable as a foreclosure is to the lenders?

Foreclosures have a direct impact on every citizen in the United States. We can no longer sit quietly and allow this to continue.