What is an underwater mortgage? N.C. State University extension economist Mike Walden explains.
“What it simply refers to is a situation where a homeowner owes more — that is, owes more in terms of a loan on the house — than the house is worth. So take an example: Let’s say that a person owes $100,000 in their mortgage on their house, but their house is only worth $80,000. Well we would say that that person was underwater. They had an underwater mortgage, because their loan amount is sort of causing them to sink.
“And, of course, what has happened — and we do see this is a big problem in the country — what has happened is, as a result of home prices going down on average over the last two or three years, people who bought a house say in 2006, 2007 — quite logically thinking the price would go up — instead the price has gone down. And if they borrowed a lot of money, you could see how this could result in underwater mortgages.
“Right now about 23 percent — 23 percent — of the outstanding mortgages are underwater. Now the good news though is here in North Carolina it is less of a problem. It is still a problem, but it is less than a problem. About 10 percent of outstanding mortgages are considered to be underwater.”Category: Economic Perspective