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June 10, 2011

Underwater Home Loans Sinking US Housing Market

Category: Home Equity Financing,Home Loan News – admin – 4:48 pm

According to CoreLogic nearly 22.7% of all U.S. homeowners were in a negative equity position with their mortgages at the end of the first quarter of 2011, down slightly from 23.1% in the 4th quarter of 2010.  In a report released Tuesday, CoreLogic states that some 10.9 million borrowers have underwater mortgages and another 2.5 million borrowers were in a near-negative equity position, which the housing data and analytics company defines as having less than 5% positive equity.

The current CoreLogic report does not attach a total dollar value to negative equity statistics but an analysis of the distribution of negative equity based on fourth-quarter 2010 numbers was published by the company last month which put the aggregate national net equity at $750 billion.  The percentage of underwater mortgage loans has only fallen 4 basis points since that time.While the drop in housing prices caused much of the negative equity, equity extraction was also a key driver.  Borrowers with home equity loans were twice as likely to suffer negative equity as those with only one lien.  18% of borrowers without home equity loans were underwater while 38% of borrowers with 2nd mortgages were in a negative position.  A total of 4.5 million negative equity borrowers have equity loans or other second mortgage liens.

Many borrowers in negative equity are still able and willing to make their mortgage payments, Mark Fleming, CoreLogic’s chief economist said.  “Those in negative equity and impacted by an income shock of some kind, such as a job loss, divorce, or death, are much more likely to be at risk of a home loan default or a short sale.

Loan default rates rise with the level of negative equity but not necessarily with the number of outstanding loans.  At a low level – a CLTV under 5% – the default rate is slightly above 2% with multi-lien properties defaulting at a slightly higher rate than single lien properties.  Above the 115% CLTV level where the default rate is 4 %, single lien properties begin to default at a fractionally higher rate than multiple lien properties.  Once the combined loan to value reaches 125% the default rate soars, reaching 12% at 150+ % CLTV with single lien properties marginally higher than those with 1st and 2nd mortgage loans.

The negative position of individual borrowers is significant.  The average underwater borrower owes $65,000 more than his property is worth.  Understanding the significance of the underwater mortgages is significant because it underscores the housing crisis and gives us a clear signal that we are nowhere near escaping the housing depression.


May 6, 2011

Equity Loan Solutions for Cash Out, Home Improvement and Consolidation

Category: Home Equity Financing – admin – 3:34 am

Over the last few years the home loan industry consolidated most of the finance programs, but creative equity loan financing still exists if you know which home equity lenders to have the ability and experience to help you. If you do not already know, a home equity loan is a type of 2nd mortgage that features a fixed rate of interest.  Homeowners have the option to tap the equity in their home by gaining access to money that is paid back in a second mortgage payment monthly.  The home equity mortgage is an installment loan that has a fixed rate with fixed monthly payment and an equal number of payments to pay back the home loan.

What Do You Need to Qualify for a Home Equity Loan in 2011?

  • High Credit Scores in the 680-760 Range
  • Home Equity – Lenders like to see 20- 30% in most cases. (some programs will still go to 90% loan to value)
  • Full Documentation – Borrowers must document their income with paystubs, W2’s and 1040 tax returns
  • Low Debt to Income Ratio – Lenders approve equity loans when the borrowers are below 40% DTI

The most common purpose for an equity mortgage loan is debt consolidation. Homeowners can consolidate credit card debt and deduct the interest on the equity loan for tax purposes. This gives homeowners a significant financial edge over renters who usually try to consolidate their bills into another variable interest credit card.  Unsecured loans typically carry a high interest rate and the maximum loan amount on an unsecured loan is usually far less than a fixed equity loan.

Maximize Your Home Equity by Financing a Home Remodel

Homeowners also like using an equity loan to help finance home improvement projects. Some construction loans will even base the home equity mortgage off the future value pending the home improvement changes.  The FHA 203K loan is similar in that it offers mortgage refinancing to 115% loan to value for the purpose of home rehabilitation. Don’t assume that all the lenders you are talking to offer home equity refinancing, credit lines and niche FHA products like the 203K.  Home Loan Wholesale will match you with home equity lenders that meet your needs and goals.