About 22% of Mortgages in Hampton Roads are 'Underwater'

Congress and the Obama administration can talk all they want about the recession easing but as long as the real estate industry remains crippled and families are faced with negative equity in their homes, the economy will NOT really rebound. Banks have been bailed out to the tune of billions of dollars, yet they are not passing that benefit on to homeowners in the form of loan modifications and work outs or new lending. The result is that more and more homes go into foreclosure and families file for bankruptcy.

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Equally bad, it has become so difficult the secure larger loans that houses over $350,000 to $500,000 that that segment of the market remains utterly dead. Combined with crushing medical costs and it is a recipe for continued economic disaster. Particularly hard hit are military families that bought homes using VA loans who put little or no money down at the time of purchase. I began a mantra that "it's the real estate market stupid" back in mid-2007 yet little has changed, Any current "surge" in home sales remains a trickle compared to a few years ago and is focused on lower end homes being acquired by first time buyers out to take advantage of the tax credit being offered. Until the banks begin loaning money in a serious manner again, do not expect the economy to recover. Here are highlights from the Virginian Pilot:
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More than 71,500 homeowners in Hampton Roads owed more on their mortgages than the homes were worth at the end of September, according to a report released Tuesday. That's nearly one in four local mortgage borrowers -22 percent - who are "underwater" on the loans, according to First American CoreLogic, which is based in Santa Ana, Calif., and tracks mortgages across the country.
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"Things have not gotten better," said Vinod B. Agarwal, an economist at Old Dominion University. "But things have not gotten much worse." Homeowners who purchased at the peak of the local housing boom, especially with little or no down payment or an interest-only loan, are the most susceptible to finding themselves underwater in a loan. Falling home values can erode any equity homeowners have in a newly purchased or refinanced home.
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Economists and real estate experts say that owing more on a home than it's worth is one of the most common precursors to foreclosure. Bank repossessions and foreclosure auctions in Hampton Roads have remained at high levels in recent months, and First American's report indicates foreclosure activity could grow, dampening the prospects of a quick housing recovery.
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Across the country, nearly 10.7 million homeowners - or 23 percent - owe more than their homes are worth, First American reported. The majority of such negative-equity mortgages are in states such as Nevada, Arizona, Florida, Michigan and California.
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Indicative of how bad things are, I received a holiday party invitation yesterday from a law firm specializing in bankruptcy work. Why? Because I have referred them so many clients in the last year. Outside of bankruptcy and foreclosure work, the legal industry is suffering severely too.