One In Five U.S. Mortgage Borrowers Are Underwater

by Jonathan Stempel - March 4th, 2009 - Reuters

About 8.3 million properties had negative equity at the end of 2008, up 9 percent from 7.6 million at the end of September, according to the study, released Wednesday by First American CoreLogic. The percentage of "underwater" borrowers rose to 20 percent from 18 percent.

Sounds bad but it is misleading. There are 30.6 million homes owned free and clear, with no mortgage at all. That is 38% of total homes. So the total of homes NOT underwater is 72.2 million, not the 41.6 stated in the article. Total homes are 80.5 million of which approximately 12% have loans exceeding their value, not the 20% quoted in the article.

The numerous articles in the MSM which leave out the homes owned free and clear do so in a blatant attempt to make the problem sound worse than it is. It is also true that nearly half the homes underwater are still not in danger of foreclosure. Once again the MSM always uses numbers that make the problem sound as bad as possible. Looked at objectively, there is no reason that we should be pouring taxpayer money into bailing out these homeowners. Looked at objectively, it is a recent problem and is more manageable than it first appears.




As you can see from the graph above, home prices have never varried much from a very stable trend line, until the last five years when a huge spike created the current crisis.

The problem is not uniformly scattered througout our nation either. The homes in foreclosure are concentrated in just five states, as validated in the article here.

Another reason that we should not be bailing out the people who are in trouble is that they are overwhelmingly refinancers, not new buyers. Few sub-prime mortgages went to new purchasers of homes. The money from the loan went directly into the pockets of the people who now are not making payments on their loans. Why should we bail out people who got rich refinancing their homes in the five states where values skyrocketed the most due to the boom. They got the money and now taxpayers in other parts of the nation are going to pay it back? How is that justice?

There are a small percentage of people in the states where the prices ballooned up, who were first time buyers damaged by the economy. We should be focusing our efforts on them, not the huge banks that created the sub-prime mess.