Monday, November 3, 2008

Almost 1 in 5 U.S. homes worth less than mortgage: report

Nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth, and the rate may soon approach one in four as housing prices fall and the economy weakens, a report on Friday indicates.

About 7.63 million residential properties, or 18 per cent, had negative equity in September, and another 2.1 million will follow if home prices fall another five per cent, according to a report by First American CoreLogic.

The data, covering 43 states and Washington, D.C., includes borrowers nationwide, even those who took out mortgages before housing prices began to soar early this decade.

Seven hard-hit states — Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio — had 64 per cent of all "underwater" borrowers, but just 41 per cent of U.S. mortgages.

This is very much a regional problem, and people tend to forget that," said David Wyss, chief economist at Standard & Poor's, who expects home prices nationwide to fall another 10 per cent before bottoming late next year.

"Most of the country is not in bad shape," he continued. "Things seem to be stabilizing in Michigan, but the big bubble states — Florida, California, Arizona and Nevada — are still very overpriced."

About 68 per cent of U.S. adults own their own homes, and about two-thirds of them have mortgages.

JPMorgan Chase & Co, one of the biggest mortgage lenders, Friday offered to modify $70 billion US of mortgages to keep a potential 400,000 homeowners out of foreclosure. Bank of America Corp., which bought Countrywide Financial Corp in July, also has a large loan-modification program.

Home prices, economy under pressure

U.S. home prices fell a record 16.6 per cent in August from a year earlier, with declines in all 20 major metropolitan areas measured by the S&P/Case-Shiller Home Price Indices.

Foreclosure filings rose 71 per cent in the third quarter to a record 765,558, according to RealtyTrac.

Meanwhile, the Commerce Department said gross domestic product fell at a 0.3 per cent rate in the third quarter. Some experts expect the worst U.S. recession since the early 1980s.

Yet despite a series of expensive government programs to spur lending, mortgage rates are rising, making it tougher to borrow or refinance. The rate on a 30-year, fixed-rate mortgage jumped this week to 6.46 per cent from 6.04 per cent a week earlier, Freddie Mac said.

Borrowing costs on hundreds of thousands of adjustable-rate mortgages are expected to reset higher in the coming months. The problem may be particularly serious for borrowers with rates tied to the London Interbank Offered Rate, or Libor, which is abnormally high relative to benchmark U.S. rates.

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