August 25, 2019

“Underwater” Mortgages Down, But Many Foreclosures Still in Sight

Numbers have shown that the amount of underwater mortgages has decreased. A mortgage is called “underwater” when the homeowner owes more money than the home is actually worth. While the numbers of these types mortgage foreclosures are dropping, some experts caution that the amount of foreclosures in general will remain high.

A residential real estate report from Zillow.com illustrated that the number of underwater mortgages of single-family homeowners has dropped to 21% from 23%. This may seem like a small change but it’s a step in the right direction.

Underwater mortgages are the number one cause of foreclosures, and when homeowners have an underwater mortgage, it increases the probability that they will lose their home to foreclosure. This decrease in underwater mortgages makes people hopeful that there will be a drop in foreclosures as well. However, there is a possible downside to the decrease too. The decrease may be attributed to the fact that so many homeowners have already lost their homes to foreclosure that the number of underwater mortgages has decreased because the homes are already lost.

A report by CNN says that there are 1.2 to 1.5 million mortgages that are seriously delinquent, which means that payments are at least 90 days late. History shows that it’s rare for seriously delinquent homeowners to catch up on payments. These numbers show that even though underwater mortgages are down, many foreclosures are probably still in sight.

The number of foreclosures may rise even more in result of adjustable rate mortgages. Borrowers in these ARM mortgages can make minimal payments on their mortgages which don’t even cover the interest on the loan. In result, many borrowers will not be able to afford the payments which may lead to more foreclosures.

Borrowers in these cases were for a time allowed to make minimal payments on their mortgages. In the meantime, however, these payments did not even cover the interest of the loan, and when the mortgages reset borrowers will be required to start paying down the principal. Many people will not be able to afford these payments, and more foreclosures are likely to follow.


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