How Many Northamericans Are Upside Down in their Mortgages?

I am just curious to see how many folks here are in this boat. Looks like there are some interesting strategies being considered to reverse the negative equity trend.

* I believe I am flat on my home in Fort Worth, Texas. I paid $151,000 four years ago and I think I could maybe sell it today for the same amount. I should have had around $15,000 in appreciation up to this point b4 the subprime debacle in Sept 2007 began...

March 5, 2008
DOW JONES REPRINTS

Bernanke's Call: Aid Homeowners
Fed Chief Asks Lenders
To Take Aggressive Steps
To Address Housing Crisis
By GREG IP
March 5, 2008; Page A3

Federal Reserve Chairman Ben Bernanke, raising the level of urgency in dealing with the nation's housing crisis, called on lenders to aid struggling homeowners by reducing their principal -- the sum of money they borrowed -- to lessen the likelihood of foreclosure, and endorsed a bigger role for the federal government in backing such mortgages.

REAL TIME ECONOMICS

Mr. Bernanke's call, in a speech to bankers, is an acknowledgement the current focus on reducing homeowner's monthly payments by modifying their mortgage rates doesn't solve the underlying problem: the increasing number of American homes now worth less than their mortgages. It also suggests Mr. Bernanke is willing to advocate more aggressive measures to address the deepening housing crisis than the Bush administration has endorsed.

"The current housing difficulties differ from those in the past, largely because of the pervasiveness of negative equity positions," Mr. Bernanke told the Independent Community Bankers of America in Orlando yesterday. With negative equity, which means a home is worth less than its mortgage, "a stressed borrower has less ability...and less financial incentive to try to remain in the home.

"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing the interest rate," he said.

A "potentially important step" to make this happen, he said, is to expand the ability of the Federal Housing Administration to guarantee larger mortgages and mortgages on which the borrower is, or is about to be, delinquent, in effect having the federal government backstop many loans that would otherwise go into default.

Mr. Bernanke has taken an increasingly activist stance on multiple fronts in battling the housing crisis. He has slashed interest rates, backed fiscal stimulus and has positioned himself between congressional Democrats, who want more government resources committed to preventing foreclosures, and the Treasury, which has focused on voluntary steps by lenders such as modifying interest rates on mortgages. (See related article4.)

House Financial Services Committee Chairman Barney Frank (D., Mass.) called the speech an endorsement of his own proposal. "It begins with [lenders] recognizing they've lost money," he said. "Once they've done that we think the FHA should facilitate the refinancing."

During the housing boom, many homes were bought with little or no money down because both buyers and lenders bet on additional home-price appreciation to create equity.

Home prices have been declining nationwide for the last year. At the end of 2006, 7% of mortgage borrowers had negative equity, according to First American CoreLogic, a research firm. A report by economists from Goldman Sachs Group Inc. and Morgan Stanley and two academics estimates that proportion will rise to 21%, or 10.5 million households, if home prices fall 15%, as they expect. Assuming an average mortgage balance of $250,000, that would put $2.6 trillion of mortgage debt "under water," the report said.

The centerpiece of the Bush administration's efforts to stem foreclosures is Hope Now, a program under which mortgage servicers and lenders voluntarily reduce or freeze the interest rates of certain subprime borrowers. Mr. Bernanke said as a result, "workouts" of subprime mortgages rose from about 250,000 in the third quarter of 2007 to 300,000 in the fourth quarter, while workouts of prime mortgages rose from 150,000 to 175,000 in the same period. That pace picked up in January, he said.

• The Background: The federal government's efforts to combat the rising wave of home foreclosures have so far focused on modifying the interest rates on homeowners' mortgages.
• The News: Fed Chairman Bernanke says reducing the loan amount, rather than altering the interest charged on mortgages, would be a better way to aid cash-strapped homeowners. Today's housing difficulties differ from those in the past, "largely because of the pervasiveness of negative equity positions," he said. Negative equity means a home is worth less than its mortgage.
• What's Next: For Mr. Bernanke's proposal to work, the Federal Housing Administration would need to be given more power to insure troubled mortgages than currently contemplated.Democrats on Capitol Hill said that is too slow. "Hope Now is not effective," Sen. Jack Reed (D., R.I.) said yesterday. "It's just not fast enough."

Robert Steel, Treasury under secretary for domestic finance, declined to specifically endorse Mr. Bernanke's proposal but said it is "one of the tools" for trying to reduce foreclosures. In an interview with The Wall Street Journal, Mr. Steel said the problems posed by the housing crisis are "hard, new things" with no single, obvious solution.

He noted since the Hope Now initiative was announced last fall, the scale of the rate-reset problem has been diminished by Fed rate cuts, which means many mortgages will reset to lower rates than had previously been assumed.

Many outside experts also believe the focus on resets has been misplaced, given that most subprime defaults occurred even before lower teaser rates reset to higher levels.

Reducing the principal rather than the interest rate is a "very different framework for thinking about the problem," said AndyLaperriere, an analyst at ISI Group, a brokerage firm. He said with so many borrowers under water, "any proposal that helps them will be very expensive for either the financial institution or the taxpayer," and a large program would potentially sweep in millions of borrowers who weren't going to default anyway.

Industry reacted coolly to Mr. Bernanke's proposal. The American Securitization Forum, which represents participants in the market for mortgage-backed securities -- pools of mortgages originated and sold by banks and other lenders -- said it had already developed procedures for modifying loans, including through principal reduction. To reduce principal, firms that service MBS pools on behalf of the end investors need "a clear basis for concluding that the related borrower is unable...rather than simply being unwilling" to repay.

Steve O'Connor, senior vice-president of government affairs at the Mortgage Bankers Association, said lenders should consider principal reduction as one way of helping borrowers as long as it is "consistent with obligations" to MBS investors.

Mr. Bernanke said a principal reduction on a mortgage that's greater than the home's underlying value may make the mortgage's actual value greater by "reducing the risk of default and foreclosure."

J.P. Morgan Chase & Co. said in a statement it has "begun to review the feasibility of principal reductions for pooled loans." Any such reduction "must balance the interests of investors...and the borrowers' needs," it said.

By tejasmarcos on Mar 5, 06:58 in Off Topic.

RAAAY says on Mar 5, 07:43:

.....

What's a mortgage..??

.

.........Its useless to argue with ignorance

morphus says on Mar 5, 10:14:

How about this?

Retiree couple needs $225K for medical

http://news.yahoo.com/s/ap/20080305/ap_on_bi_ge/retiree_health_care

scotty says on Mar 5, 11:32:

Get Rhythm, when you got the blues. Johnny Cash

pedro says on Mar 5, 11:54:

So let me get this straight.

The "Greenspan put" covered everyone for bad investments in equities.

The "Bernanke put" extends that to cover our bad investments in real estate too?

"also while I am at it anyone who need to have more than one username on here to me is not a serious member of this forum" -- vicshere. ¡save pow wow!

gringoloid says on Mar 5, 12:19:

in california, everybody i know, except me, has refinanced and taken large sums of money out to buy suv's etc.,..............some people refinanced and took 125% of the 'then' value of their homes.............this is all making me sick.

podborski says on Mar 5, 14:53:

let's see, the price of gas goes up and people scream and moan and blame evil Exxon, the price of cars go up and the greedy auto makers are to blame, yet the government feels it is in the nation's interest to drive the price of housing up....

am I the only one who thinks this is nonsense?

scotty says on Mar 5, 15:48:

pod...right in target

Get Rhythm, when you got the blues. Johnny Cash

miamimike says on Mar 5, 20:24:

Here in Miami 1000s of Homeowners in Kendall, Weston, Coral Gables, Hollywood ect are Upside down but its the nature of the people here in Miami to live way over their heads and go deeply into debt. As long as they have Nice Gold Jewelry, Dancing at Overpriced Discos on South Beach, a Fancy SUV, Huge House, Designer Clothing, nothing else is important. Look good for the neighbors even though the Kids have no clothing, school supplies or even a loaf of Bread in the Kitchen. But My, Do they look good as they lose their Home. I payed Cash for my Condo 13 years ago. All $17K of it! LOL. I'm Downside Up I guess!

DodgerDogs says on Mar 5, 23:00:

mm,
Congrads and smart move , as it is yours and not the banks.

Our lives begin to end the day we become silent about things that matter.Martin Luther King:

tejasmarcos says on Mar 6, 15:50:

it's a sticky situation to say the least. the conduits made a mint while originations were at full throttle.

the first 125% mortgage was first plus. they had dan marino as their spokesperson. the loan actually made sense in certain parts of california (it was only for ca.) while appreciation was at its peak. almost everyone used this loan to pay off their ridiculously high balance credit cards. i still know the ceo of the now defunct company to this day. he is now in the insurance biz & made $3.5 million last year. it would make you sick if i explained the details....

god is in your head

scotty says on Mar 6, 18:42:

i know people personally that are having problems and it is a sad situation. I lucked out i locked in a 30 year fix at a reasonable rate and im damn glad i did just before all this started.

Get Rhythm, when you got the blues. Johnny Cash

tejasmarcos says on Mar 7, 05:28:

i have a 30 year fixed at 5.125%. i wish i would have locked the 15 year at 4.75%, but that would have increased my payment outside of the normal rental range for the area.

god is in your head

LDW says on Mar 9, 10:31:

The Germans have an interesting expression, which translated into English goes something like:

"The trees don't grow to the sky"