Mortgage Rate News

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With the news that close to half of home mortgage loans may be underwater by 2011, there is speculation that more foreclosures may be coming. Indeed, there are concerns that foreclosures might be on the way as the incidence of negative equity increases. While negative equity does not always mean foreclosure, it can be an indicator the more foreclosure is on the way. Mish’s Global Economic Trend Analysis offers this insight on underwater mortgages and foreclosures:

The biggest factor in foreclosures and walk-aways is whether or not someone is underwater. If someone with equity always has a chance to sell. The second biggest factor is “skin in the game”. Those who put down 20% are far less likely to abandon their properties than someone who put down 10% or less.

If you agree with this analysis, then it seems obvious that more foreclosures are on the way. After all, prior the mortgage market crisis, there were a number of home mortgage loans made for people who probably should not have had access to the kinds of borrowing they did. 0% down payment loans, as well as other types of loans, mean that many borrowers had — at most — 5% down payments. As a result, those with negative equity, and who did not put down much in the way of an initial payment, are more likely to simply walk away from their home. If nothing is holding you…

In the end, it is unclear whether some measures will be able to adequately address some of these underlying concerns. While some mortgage borrowers will be able to benefit from loan modification, those with “liar loans”, or those who have recently lost jobs, cannot afford even modification. And for those whose homes are in danger of foreclosure, right-to-rent may prove to be a bitter — and undesirable — option.