Underwater Mortgages Are Huge Problem Per New Zillow Negative Equity Report: Will Florida Banks and the Powers That Be Do More for Florida Home Owner Short Sales and Loan Modifications?

Posted By on May 24, 2012

Today, Zillow.com released its research study on the United States’ housing market, “Zillow Negative Equity Report,” and it’s not good news for anyone.  From the Zillow experts, in the first three months of 2012:

  • 31.4 percent of U.S. homeowners with a mortgage are underwater.
  • On average, U.S. homeowners owe $75,644 more than what their house is worth, or 44.5 percent more.
  • Almost 5 percent of homeowners with a mortgage in the nation owe more than twice what their house is worth.
  • One third of homeowners with mortgages is underwater
  • 90 percent of underwater homeowners are current on their mortgage and continue to make payments.

These are national averages; Florida, of course, has even higher numbers for underwater mortgages because Florida’s real estate market has been one of the hardest hit real estate markets in the country.

To check out your neighborhood, go to Zillow’s interactive map and enter your zip code. For example, “33179” (Ives Estates) has 59% of homes underwater and “33025” (Miramar) has 63% of homes underwater.

Here’s one very important fact found in this Zillow Report:  there are many, many Americans – as Florida real estate lawyers know so well – that are paying their mortgage payment every month even though the home has negative equity, or has a value much less than the amount on the note.  Americans aren’t walking away from those mortgages for the most part.

Consider this image provided by Zillow:

For a Florida home owner paying a mortgage note on a home that has lost so much value, there is a consideration every month as he or she writes that mortgage payment check (or sends that online payment) whether or not it’s financially smart to keep paying the bank in this situation.  Everyone hears about “strategic defaults” – everyone wonders if that is wise, if it’s ethical, if it’s the right thing to do for their family.

In this market, there’s a lot to consider as a Florida homeowner.  Respect has to be given to every homeowner who keeps making those mortgage payments on an underwater home.   Respect also has to be given to every homeowner who evaluates his situation and considers his options.  Getting legal advice on your options, for example, isn’t committing to a decision: it’s knowing what your choices are and discussing them with someone who has a handle on the current market crisis and the Wild West legal mess that Foreclosure Fraud has created.

It goes without saying that there will be Florida homeowners who will decide it is their best course of action to default on these underwater mortgages as throwing bad money after good.  What the media coverage and experts are writing about now, as this Zillow Report gets circulated, is how many will choose to do so.  A big number is a big impact on the economy, and that’s what they’re worried about.

Larry Tolchinsky’s Tip:

The truth is this:  the tremendous number of underwater homes in Florida as well as the rest of the country is a big deal not just to the individual family setting in a home with a mortgage debt that is so much higher than market value of their home but to the nation as a whole.  Negative equity is a market problem.

Sure, there can be finger pointing at the federal and state governments to do more in solving this problem.  For one thing,  that December 31, 2012, deadline for getting a tax benefit in a short sale needs to be extended again (for details, read our earlier post here.)

However, there’s also the reality that banks need to get a grip and start making deals with those who are underwater in their home mortgages.  Private sector banks could be doing a lot more to help get short sales done.  Lenders could be creative and cooperative with home owners who want to negotiate loan modifications.  That could happen today.  Maybe the Zillow Report will help move Florida lenders to start working with Florida home owners in finding solutions to problems.

Fingers crossed.  Not optimistic that banks will change their ways anytime soon, though Bank of America’s relocation program for short sales is a good first step in the right direction.

If you have questions or comments, please feel free to Chat with Larry in the comments below, at info@hallandalelaw.com or (954) 458-8655.

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