Mortgage Rate News

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Today, Deutsche Bank forecast that by 2011, 50% of mortgages will be underwater. BloggingStocks reports on some of the findings of the study:

Declines in home prices and the fact that some of those difficult mortgages just aren’t going away put 26% of homeowners in this situation by the end of last March, and it seems the situation is only going to get worse. Unlike the early stages of the credit crisis, which were driven by subprime mortgages, the next iteration will have a greater effect on prime mortgage borrowers, which comprise two-thirds of the loans outstanding.

It’s an interesting study, really. And I find it interesting that it mentions prime mortgages. As the recession — and the unemployment that comes with it — has progressed, those beyond the initial participants in the mortgage crisis have become increasingly affected. And it is likely to continue, since the housing market is not expected to return to normal until 2012.

Negative equity is not the same as foreclosure

It is important to note, though, that the study looks at negative equity, and not at homes expected to be in foreclosure. When the home is underwater, it means that the owner owes more on it than the home is worth. Having negative equity does not always lead to foreclosure. Indeed, as long as you can continue making payments on your home mortgage loan, you should be able to stay in it, even if it is underwater.

For those who plan to be in their homes for a long while, and who do not end up needing to move, negative equity can be overcome when the housing market recovers and home values start to rise again. Those that find themselves in trouble are folks who try to sell their homes, or who lose their jobs and can no longer make mortgage payments. If these types of scenarios continue to rise in frequency, it is likely that the increase in underwater mortgages will be accompanied by further foreclosures.