Staying afloat if your home has negative equity

QUICKREAD

Underwater mortgages

Percentage of home mortgages with negative equity in states with available data in the third quarter of 2009:

HIGHEST

1. Nevada 65.0%

2. Arizona     47.9%

3. Florida     44.7%

4. Michigan     37.3%

5. California     34.7%

6. Georgia     24.0%

7. Virginia     23.8%

8. Maryland     21.5%

9. Ohio     20.1%

10. Idaho     19.7%

11. Colorado     19.0%

12. New Hampshire     18.5%

LOWEST

1. Oklahoma       6.1%

2. New York       6.2%

3. Montana       6.4%

4. Alabama       7.4%

5. Pennsylvania       7.5%

6. Hawaii                 8.2%

Source: First American CoreLogic



As with most economic trends, Grand Junction is a bit behind when it comes to negative equity.

Having negative equity on a property, also known as being underwater or upside down, occurs when a property is worth less than it was when a person moved in, and the person owes more on the mortgage than he or she would get for selling the place.

Karen Harkin, director of home finance for the Colorado Housing and Finance Authority, said the number of homes with negative equity began to thin three or four months ago. But Grand Junction was late to enter the trend and will have a few months to go before seeing the recovery experienced in other parts of the state, Harkin said.

The reason local residents may not hear much about negative equity from their neighbors, Harkin said, is because many homes with negative equity in the Grand Valley are empty and owned by investors.

A study by research firm First American CoreLogic found nearly 23 percent of all residential property in the United States had negative equity in the third quarter of 2009. The same study found 214,436 out of 1,126,882 home mortgages in Colorado (19 percent) were underwater, placing Colorado 11th in a ranking of the 43 states that provided third-quarter data.

Harkin advises people to ride the storm out and stay in their homes until the recovery puts them in better stead. But if a person must sell his or her home, there are options. A homeowner can seek advice from a housing counselor or go straight to their mortgage lender and try to negotiate a lower mortgage payment.

A lender may offer a short sale, which means the lender gets less money for the home than originally planned, but it’s often easier and less expensive for the lender than having a home go through the foreclosure process. For the homeowner, a short sale takes pressure off the pocketbook but stays as a negative on the person’s credit report.

Foreclosure also affects credit scores. It’s the last step a person should take if the mortgage becomes too much to handle, and it means the lender gets possession of the home, which will be auctioned for sale if a person stops paying mortgage payments.

A person can refinance a home to make mortgage payments less expensive, as long as the loan is from a public entity such as Freddie Mac or Fannie Mae. This is a new possibility and comes from the federal government’s Home Affordable Refinance Program, which aims to help as many as 4 million to 5 million American families.

The Home Affordable Modification Program is designed to help an additional 3 million to 4 million Americans avoid foreclosure. The program is funded with $75 billion.

While modification is for people struggling with mortgage payments because of a high interest rate or lower income, refinancing is more appropriate for people who have lost value on their home.

If a family is struggling to make mortgage payments, Carmen Mincie, a mortgage specialist with Wells Fargo in West Virginia, said the homeowner should call their lender right away. Banks, including Wells Fargo, have created new programs to deal with negative equity and other mortgage problems, Mincie said.

“We try to do what we can,” she said.

Being upside down on a mortgage can mean headaches for homeowners and a flurry of credit problems for people looking to sell their homes. But it can be good for a community, Harkin said, especially in a city like Grand Junction, where finding available and affordable real estate and rentals has been a challenge in recent years. When home values drop, it’s not much help for people with mortgages, but it opens up more possibilities for buyers.

“It’s a correction to bring more people back into the market,” Harkin said.

That in turn helps bring the real estate market back to normal for existing homeowners, according to Harkin.

“As we get more buyers, we see more competitive bidding. That increases the value (of property),” she said.


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