No Positive Equity until 2020?

This morning, DSNews.com reported that First American CoreLogic's recent study shows that some areas in the U.S. have properties that are in a present negative equity scenario that will not see positive equity until 2020. Many of us knew it would be a while, but 2020? Their stats are based on data extracted from research done in many areas across the U.S.

So what does this mean for us in the real estate industry? Well, firstly, that short sales will be around in some capacity for a long time. Agents that are on the fence about short sales will need to surrender and take the plunge...or face a probable business failure. Agents that have already built up their business by getting certified and helping homeowners sell their upside down properties in the pre-foreclosure state will have a head start.

What does this mean for defaulted or soon to be defaulted homeowners? The study mentioned states that "The latest numbers from First American CoreLogic show that more than 11.3 million, or 24 percent, of all residential properties with mortgages were underwater at the end of the fourth quarter of 2009". Wow! That's almost a quarter of the mortgages in the U.S.! Furthermore, "Among the new housing initiatives announced by the administration Friday was assistance for borrowers with negative equity. In order to deter these homeowners from strategically defaulting, the Treasury will begin requiring servicers to consider principal write-downs as part of their Home Affordable Modification Program (HAMP) evaluations for borrowers whose loan balance is more than 115 percent of the property’s current value. The plan also includes a Federal Housing Administration (FHA) refinancing program for negative equity mortgages."

Ok, so we are expecting defaulted homeowners to "strategically default" on their loans due to the fact that there is no light at the end of the tunnel...equity speaking. That could create a disasterous effect on the housing market, which is already poised for future foreclosure waves in mass volume. So what is the governments answer to this potential epidemic of massive "strategic defaults"...principal write-downs (reductions) via loan modification for borrowers whose LTV is more than 115%. There is a lot of chatter about these principle write-downs and it will be very interesting to see how this plays itself out. Bank of America unveiled a plan on upside down defaulting HELOC's (that are in junior position) called "Earned Principle Write-doowns". With this program, the borrower would have to make the new modified payment for 5 years before the loan principal would be permanently reduced.

PartnerFirst members, chime in here or in the discussion/open forum area about your thoughts on these matters.

Article Link: http://www.dsnews.com/articles/print-view/how-long-will-negative-equity-last-2010-03-29