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Second-Mortgage Misery
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According to real estate data firm CoreLogic, 38% of U.S. home owners who took a second mortgage on their homes are under water on their loans. 18% of borrowers who did not take a second mortgage are under water and have negative equity in their homes. Second mortgages are loans taken out on a property that are subordinate to first mortgages, including home equity loans and lines of credit. Borrowers with second mortgages have an average of $83,000 in negative equity compared to $52,000 for borrowers without second mortgages according to CoreLogic. During the boom borrowers took out cash using home equity loans and lines of credit for everything from home renovations and automobiles to tution and other expenses. Federal Reserve Board data show homeowners took out a huge amount, $2.69 trillion, from their homes for 2004-2006. Overall the number of underwater homeowners, or homeowners with negative equity in their homes, remained steady, according to CoreLogic's report- 10.9 million Americans in the first quarter of 2011, compared to 11.1 million for the fourth quarter of 2010, 22.7% of all homeowners nationwide compared to 23.1%. The slight decline reflected completed foreclosures, suggesting that the market conditions have not changed. Roubini and other experts predicted large housing losses in 2011-2012. This also affects America's largest banks. While the large part of the first mortgages were bundled and sold as securities, the home equity loans remain on bank balance sheets. About three fourths of the $950 billion in home equity loans outstanding were held by commercial banks at the end of 2010. Over 40% of this is on the books of Wells Fargo, Bank of America, J.P. Morgan Chase, and Citigroup. A writedown on these loans could use up a significant part of the bank's capital.
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Structural problems like a mismatch of skills between maufacturing and construction sectors worst hit since 2008 and growing sectors like healthcare is one problem. Geographic factors and difficulty selling homes in states like Michigan is another. The tighter credit from a return of banking sector losses from bad home equity loans that is expected in late 2010 will keep the recovery from taking hold keeping unemployment high. The economic uncertainty following repeated budget battles between political parties also affects business investment.
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Home equity loans, negative equity of homeowners, and the housing crisis in the U.S.- 2011-2012
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Rising U.S. Foreclosures take on crisis proportions deepening the economic downturn.
08/24/2007
Foreclosures in 2008 hit 16% up from 6% in 2007, and in an accelerating trend if unemployment hits new highs.
Grouped Articles
A Toxic Subprime Mortgage Bond's Legacy Lives On
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Growing Risks for the U.S. Economy in 2010-2012.
01/04/2010
Risks of another hit from losses on home equity loans to bank balance sheets in latter part of 2010. The situation with local and state governments in the USA cutting back significantly. The situation in Europe and an overheating Chinese economy.
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The Home-Equity Hurt Ahead for Banks
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Negative equity and near zero down payments as the major causes of U.S. foreclosures and the housing crisis, more than subprime loans.
01/05/2009
Research showing that negative equity and zero down payments are the biggest cause for surge in U.S. foreclosures.
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J.P. Morgan Loosens Terms for Jumbo Mortgages
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New Evidence on the Foreclosure Crisis
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One in Four Borrowers Is Under Water
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Failure to stem foreclosures under the Obama administration continues inaction under Bush administration.
08/24/2007
The failure of the Obama administration to break the cycle of foreclosures begetting falling house prices begetting more foreclosures, further weakening the banks and the economy, with strong action. It continues the missteps of the Bush period and may undo much of the good work in other areas such as stimulus, restructuring the auto industry and new priorities. Inaction here is coupled with inaction in relation to insolvent banks and is likely to prove costly.
Grouped Articles
New York Times 07/17/2011
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The Case Against the Bernanke-Obama Financial Rescue
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New York Times 05/19/2014
Nouriel Roubini on large housing losses for the U.S. economy in 2011-2012
12/07/2010
Estimates of $1 trillion in housing losses spread over banks, Fannie and Freddie, as a new wave of foreclosures hits the U.S. economy.
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U.S. Banks handling of foreclosures and mortgage securities.
10/16/2010
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Wall Street Journal 10/16/2010
Fannieâs and Freddieâs Foreclosure Oversight Questioned
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The Case Against the Bernanke-Obama Financial Rescue
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The lack of any meaningful help to prevent foreclosures for homeowners who are unemployed.
06/04/2011
The adverse effects on housing, on banks holding second mortgages, and on the economic recovery in the U.S., of the lack of a plan and little effort by the Obama administration to help the unemployed facing foreclosure. Most of the programs to prevent foreclosure were designed at the time of the bailouts for subprime lending situations. Prof. Davis at the University of Wisconsin call it outrageous that less than $2 billion of the $45 billion allocated to help homeowners at the time of the bailouts had been spent by Treaury Department as of May 2011.
Linked Articles
Unemployment Strains Foreclosure Aid
New York Times 06/04/2011
Wall Street Journal 06/07/2011
The health of the U.S. economy June 2011- housing market and construction
05/31/2011
Linked Articles
Wall Street Journal 06/07/2011
Housing Prices, Still Falling, May Be Nearing Bottom
New York Times 05/31/2011
The weakness in housing, construction and consumer spending for the U.S. economy in 2011-2012
06/07/2011
Linked Articles
The Sickness Beneath the Slump - Economic View
New York Times 06/11/2011
Wall Street Journal 06/07/2011
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