Have you noticed a lot of recent press criticizing the HAMP program as short-sighted and delaying the inevitable onslaught of more foreclosures? The underlying theme is pointing to "negative equity" as a primary factor for homeowners "strategically defaulting" - ultimately deciding to let their home go to foreclosure or short sale.
In case you missed some of those recent articles and resources:
Amherst Securities testified before the House Financial Services Committee (12-8-09) - Download Amherst Securities Group - HAMP Testimony
Two main points from this report:
1. Single largest problem with housing market is negative equity.
2. Current modification program does not address negative equity and is destined to fail.
WSJ Development Blog (1-4-10) NY Fed: Most Successful Mortgage Modifications Reduce Borrowers’ Principal
Borrowers who receive loan modifications that reduce loan balances and not simply interest rates are far less likely to re-default on their loans, according to a new study from the Federal Reserve Bank of New York. Modifications that write down loan balances “can double the reduction in re-default rates achieved by payment reductions alone,” the study says.
Negative Equity Report for Q3 (Calculated Risk Blog 11-24-09)
Data Highlights
Nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of September, 2009. An additional 2.3 million mortgages were approaching negative equity, meaning they had less than five percent equity. Together negative equity and near negative equity mortgages account for nearly 28 percent of all residential properties with a mortgage nationwide. The distribution of negative equity is heavily concentrated in five states: Nevada (65 percent), which had the highest percentage negative equity, followed by Arizona (48 percent), Florida (45 percent), Michigan (37 percent) and California (35 percent).
Other articles/reports/studies:
- White Paper Sees Strategic Defaults Rise with Negative Equity (12-08-09)
- Strategic Default White Paper - Strategic_Default_White_Paper.pdf
- Negative and Equity and Foreclosure - Negative Equity and Foreclosure.pdf
- Moral and Social Constraints to Strategic Default - MoralandSocialConstraintsto_StrategicDefault.pdf
- Subprime Mortgage Modification and Re-Default - Subprime Mortgage Modification and Re-Default.pdf
