2 Million Homeowners Freed from Negative Equity in 2012

At the end of 2011, the percentage of homeowners with negative equity, or an underwater mortgage, sat at 31.1%.  Q4 of 2012 saw that percentage fall to 27.5%. This means that nearly two million homeowners were freed from negative equity in 2012.

To spell out just how many homeowners those percentages point to, in 2011, 15.7 million people owed more on their mortgages than their homes were worth. That number now rests at 13.8 million homeowners as of Q4 2012. On top of those statistics, it is evaluated that those 13.8 million homeowners were collectively underwater by more than $1 trillion.

This information comes from Zillow's Negative Equity Report. They further predict that by Q4 of 2013, the negative equity rate will fall to at least 25.5%. That figure would mean that more than 999,000 additional homeowners nationwide would be freed.  This is all determined by Zillow's method of applying anticipated appreciation or depreciation rates to a home, assuming all other factors remain constant.

"As home values continue to rise and more homeowners are pulled out of negative equity in 2013, the positive effects on the housing market will be numerous. Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets," said Zillow Chief Economist Dr. Stan Humphries. "But negative equity is still very high, and millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas. As a result, negative equity will remain a major factor in the market for the foreseeable future."

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New Act to Protect Taxpayers?

We reported about the possibility of the government doing an eminent domain procedure regarding underwater mortgages. Now, California Representative John Campbell has announced "The Defending American Taxpayers from Abusive Government Takings Act". This Act is meant to stop the local governments from using federal tax dollars to seize underwater homes, and turn that money toward profiteering schemes. This act is meant to uphold the law and protect taxpayers.  We can all agree that underwater mortgages are slowing down the recovery of the housing market, but there has to be a better solution than eminent domain.

It is supposedly going to protect taxpayers' investments, defend retirement savings, and preserve the rule of law. What do you think about this new Act?

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Local Governments to Seize Underwater Mortgages?

If you consider the state of the housing market with all of the homes that are still underwater on their mortgages, you may come to the conclusion that the federal programs that promised to help homeowners have not been very successful. True, they have helped many, but overall their assistance is limited.

A new idea has come up that has struck a nerve with mortgage financers: eminent domain. Local governments could write down mortgages in the same way that a piece of land is condemned. The town or county would get the court's approval to pay a "fair market" price to the lendor or investor that is holding a homeowner's underwater mortgage. This would be similar to credit companies selling debt to collectors in that the amount would be substantially less than the unpaid balance. Once approved, the local government would sell the smaller mortgage back to the homeowner who would refinance that amount with a new loan and basically get a second chance on paying their mortgage.

This idea has drawn a lot of controversy. The FHFA has threatened unspecified action against local governments if they opt to seize underwater homes through eminent domain. The FHFA regulates the government-sponsored enterprises Fannie Mae and Freddie Mae hold nearly half of the outstanding mortgages in the US.

In the past, eminent domain has been used in small cases to claim property for new roads for facilities that would somewhat benefit the community. Critics say that seizing individual properties would only benefit homeowners by giving them a break on their loan balance. It is argued that these seizures would serve the public by boosting local housing markets and helping to speed up economic recovery. Despite this, the FHFA is understandably opposed to the idea since they would lose money on every case.

Many opponents of the eminent domain idea claim that this would raise an issue of "moral hazard". If homeowners were given these second chances by having their underwater mortgages cut, they would be encouraged in the future to take on debts that cannot be paid back. It would bring about a whole slew of irresponsible homebuyers who think they can just get bailed out later.

What do you think? Is eminent domain a good idea or would it hurt the economy?

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BofA and GSE's Ongoing Battle

Bank of America has been in the news for quite some time now. They were accused of selling mortgages to people who did not actually qualify. The government sponsored entities, Fannie Mae and Freddie Mac, want BofA to buy back all of the mortgages. This has been a debate for a while and it hasn't made much progress. A settlement would be good news for shareholders as it would alleviate some of the pressure from BofA's stocks. The GSE's have been more strict regarding the bank's policies for mortgages now since the bank accounts for 58% of the GSE's total mortgage repurchase requests. Our sources say that the bank and the GSE's talks have become more productive in the past few weeks and are closing in on an agreement.

Earlier this week a proposal to reduce the mortgages of underwater homes in the U.S. was rejected. FHFA denied the request to allow the GSE's to lower the principal on mortgages where homeowners owe more than the house is actually worth.

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Economic Struggle: Underwater Mortgages Hindering Job Search

Many American homeowners are finding it increasingly difficult to apply for jobs because of their housing situation. Homeowners who are strapped to the mortgage of an underwater home seem to be having difficulty leaving it. This means that job relocation rates are suffering.  The number of people who are willing to relocation during this recession is at 13.2%, but the average relocation rate since 2009 has been around 7.9%.

Despite needing jobs in this rough economy, many are forced to stay where they are and pass up far-away employment opportunities because of their mortgages and financial burdens. This in turn effects employer's long-range growth. Once they run out of local options, they will need to rely on those willing to relocate  in order to prevent their company's expansion plans from stalling, which would ultimately effect the economic growth of the country. Unfortunately at this point, most employers will not cover an employee's relocation costs and even fewer will help lessen the impact of selling an undervalue home. All of these factors add up to very little incentive for a job seeker to take a chance on moving to a new location.

It seems as though moving really is a last resort for the majority of job seekers. There are not many who are willing to take such a big loss on the sale of their home for a job position that may not last long or pay off well. Overall, people are a bit stuck. This could be one of the biggest obstacles for Americans in this economic recovery.

Hopefully the American people will take advantage of all the mortgage help that is being offered lately such as the impending bank deal that will help those facing foreclosure to restructure their loans. There's also HARP's new guidelines that are allowing homeowners to refinance at today's lower mortgage rates. And if absolutely necessary, Freddie Mac will be allowing unemployed borrowers an additional 6 months of forbearance on their mortgages.

So if you are one of the homeowners who feel stuck because of a lack of job opportunities and the impossibility of leaving your home, hold tight. The help is coming. Recovery is on the horizon. Here's to hoping that it truly will help Americans to climb back out of the holes caused by unemployment rates and underwater mortgages.

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