Underwater mortgages float to the top

Date posted: October 14, 2013

A new term was introduced a couple of years ago — underwater mortgages — to describe homeowners with mortgage loans exceeding the value of their home. Obviously this is not a good situation to be in.  Are we finally seeing improvement? N.C. State University economist Mike Walden responds.

“We really are, and the numbers are really striking. In 2011 there were 21 million homeowners who had what’s called negative equity in their homes, meaning they were underwater in their mortgage — 21 million.

“The latest data for the second quarter this year show that’s down 5 million, so a dramatic improvement. Now the reasons aren’t all good. One of the big reasons is simply that a lot of those 21 million homeowners who were underwater, they’ve had to be foreclosed on. So, they’re out of their homes, and the mortgage has been wiped off the books. And obviously, that’s not a good outcome.

“But there is a positive reason, and that is that we’re finally seeing home prices going up pretty much everywhere in the country. And obviously, as the price of your home or the value of your home goes up, in some cases that’s going to wipe out that underwater mortgage, because the equity then becomes positive.

“Now we still see underwater mortgages as a big issue in some states. Nevada, Illinois, Maryland, Georgia and Florida have the highest rates of underwater mortgages. Importantly, North Carolina right now, the latest data show we’re very low on that measure. Less than five percent of our mortgages right now are classified as underwater.”

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