The problem of negative equity

In fact, economists are predicting that many homeowners will be in worse shape within the next two years than they have been in previous. Studies are showing that almost half of the US’s 52 million borrowers will have negative equity by the beginning of 2011. According to the report done by Deutsche Bank, the number of borrowers with negative equity is telling of a huge pool of owners who will either default or go into foreclosure.

Down payments valued at zero dollars

Negative equity happens due to various factors, but the most common is the decline of home values. Since the recession, that has been a chronic problem within the housing market. According to real estate website Zillow.com, home values throughout the country have declined by 22.3% since mid-2006. To the average home owner who put down 20% of their mortgage, that means their down payments have lost their complete dollar value. Karen Weaver, research analyst at Deutsche Bank, said, “The continued decline of US home prices will contribute to rapidly rising rates of negative equity. The most obvious implication is for mortgage defaults.”

Watch for the signs

When it comes to the housing market, all homeowners should be watching the market. There are clear signs when a home is at risk of declining in value. More and more homes are proving that falling behind or going into foreclosure have more to do with home value drop based on the economy, than on job, credit, or income. Here are some signs to watch out for:

1. Foreclosures in your area. The biggest danger sign to watch for is when neighboring homes start falling into foreclosure. Mark Zandi, chief economist at Economy.com, said “When one home on the block goes into foreclosure, every home’s value drops by 1%… if two homes on the block go into foreclosure, every home’s value drops by 3%.” Once homes start dropping considerably due to distressed properties in the neighborhood, it’s difficult to overcome. While small personal loans or savings can rescue homeowners in minor trouble, adding a difficult neighborhood market can mean disaster.
2. Homes not selling. Another sign to watch for is the number of homes in a neighborhood that are not selling. The underlying message is that buyers and sellers have not been able to come to an agreement on the transaction. Zandi believes that “the time on the market is always a good barometer of demand for homes and for the price homes are transacting at. The longer it appears that neighbors are taking to sell their home, the more likely it is that they are not getting the price they want and that prices are falling.”
3. Rising unemployment rates. Generally speaking, cities with the highest unemployment rates suffer from the highest home value loss. For example, Merced, California’s unemployment rate is one of the highest in the country at 17.6% and home values have declined by over 40%. Homeowners in areas with high unemployment rates are cautioned that if primary industry in their cities were hurt due to the recession, their home values may fall even quicker.
4. Distressed homes. Neighborhoods with a notably high number of distressed properties are at a higher risk of homes losing value. Zandi confirmed, “Normally dented siding, peeling paint and broken porches are signs that neighbors are having trouble making ends meet and can’t pay for the care of their homes. The mere fact that they are not investing in their homes will affect you, too.”

Time is the key to overcoming negative equity

Although the issue of negative equity is a serious one, it isn’t an inevitable repercussion of the recession. Homeowners who plan on keeping their homes for the next five to seven years most likely will recoup any lost value of their properties. For homeowners who are finding it hard to make ends meet, small personal loans should be used for the shortfall, rather than borrowing against the mortgage. Then taking a wait-and-see attitude may be the best option in coming months.

Start your personal loan application HERE!

Looking to refinancing

The growing reality in today’s economic climate is that home values have plummeted. People who had paid religiously into their mortgages for years were surprised when the economy ate away at the equity they thought they had amassed. That is the stickler when it comes to refinancing. People have such low equity that it hardly qualifies them for a refinance. Add to the equity issue the fact that lenders are much stricter now post-recession and banks are adding higher fees, and it makes for a sector of homeowners who have few options.

The new states of interest rates and home value

The survey done by Credit Suisse showed that about 39% of homeowners in the 30-year fixed-rate segment currently have interest rates of over 7%. A good number of those people could bring their interest rates down two full percentage points if they were able to refinance at current rates. Despite the possibility, however, the number of refinance applications in January of this year was lower than it was this time last year.

Another chronic problem the recession created was the increase of underwater mortgages. This is a condition where homeowners owe more on their houses than what the property is worth. Recent surveys show that almost 25% of all homeowners are currently underwater. Of course that also makes it impossible for them to refinance and find relief. The reality of the banking world is that banks want collateral to back up the loans they are making and with drastically diminishing home values, they aren’t willing to take on the risk. A homeowner, who has no equity on the books, is left with few options when it comes to maneuvering their debt and finding fast cash.

What is being done to help

The overriding issue when it comes to refinancing is how things can change to make more homeowners qualify. Most experts agree that due to lenders creating stricter rules, they are undermining the government’s efforts to allow homeowners to use the lowered interest rate advantage. It defeats the purpose of sustained lows in interest. Fannie Mae and Freddie Mac are also adding their own fees in an effort to raise revenue and mitigate losses. It’s easy to see how mitigating losses and maintaining low interest rates are counteracting one another. Fannie Mae and Freddie Mac are seeking a balance between taking on the risk of low-credit scoring homeowners and giving more people access to credit and refinancing options.

In the future expect more homeowners to be able to refinance and find fast cash like they did in the past. There is a caution, however, that those with drastically low credit scores most likely will not be able to refinance, regardless of what changes lenders make. Though the government and lenders are working together to create more customer-friendly climates for those with less-than-perfect credit, it will take much longer for low-credit customers to find any relief.

Need fast cash? Apply HERE!

Governments struggling over tax revenue declines

Homeowners looking for cash now are having a difficult time due to their tax bills. Across the country, owners are challenging their tax amounts due to the value of their properties declining. The overall result is that local governments are in danger of losing yet another revenue in the already struggling state coffer. It seems that homeowners from New York to Arizona are arguing about their tax bills, and socioeconomics is not a contributor. Homeowners of $10 million-estates to one-bedroom bungalows are taking up arms against the tax bill.

A nationwide crisis

Gus Kramer, assessor in Contra Costa County, California, (see http://www.cnbc.com/id/31747498) said, “It is worthy of a Dickens story. These people are desperate. They know their home’s gone down in value. They have watched their neighborhoods being boarded up. They literally stand in there and say: ‘When can I have my refund check? I need to feed my family. I need to pay my electric bill.’”

Governments are having a difficult time with the issue. According to a survey done by the National Association of Counties, 76% said that falling property tax revenue was significantly eating away at their budgets. Jacqueline Byers, research director for the firm, said, “In the recession today it’s difficult for any government to give up any revenue. The tax revenue being hit hard couldn’t have come at a worse time.”

The recession and the state budget

The recession was difficult on every local government. The staggering growth in unemployment, lack of spending and a drop in revenues for every business have combined to make it difficult on the states. Although many experts are citing the recession as being officially over, there is still a time to regroup and resettle. Byers added, “Though the recession is behind us, its wake isn’t. We still have to wait and see what needs to be cleared up before the market returns to normal.”

Some counties are trying to make ends meet by raising the tax rates associated with home values. The plan is a sketchy one because homeowners looking for cash now don’t have extra funds to put into their homes. Add to the problem the loss of equity in their properties and it’s a difficult thing to ask for more money. Byers said, “Raising tax rates is like squeezing homeowners for something they just don’t have right now.”

Homeowners are asking for reassessments

Many homeowners are requesting reassessments. For example, in Atlanta, Georgia, thousands of people lined up at the local government office to file a request for a reassessment. In Ohio the numbers of requests have multiplied five times over. Robert W. Singer, mayor of Lakewood Township, New Jersey, said, “We have been absolutely getting killed. We have never had this before. Usually they are undervalued. Now, everyone is overvalued.”

The added cost is hampering local governments even more. Property taxes are calculated by a wide variety of things and no one formula is used for towns, counties, schools, and fire districts. Each one has their own set of rules. Because tax formulas vary so widely, not every assessment value that comes back lower is going to translate into a homeowner’s tax bill being lowered along with it.

Homeowners in trouble over tax bills

In the end, homeowners who need cash now to pay their tax bills have to be creative. Bonnie Grassley’s house in Fort Pierce, Florida is having problems making her tax bill. Though she only has to come up with an additional $150 a month, she is unemployed and living off of savings. She said, “My home means everything to me and it is all I really have. I am determined to keep it, come hell or high water. It is a terrible way to lose your home, just over taxes.”

Need fast cash now? Apply HERE!