A new study released by Zillow late last week indicates that about 21.9% of all homeowners, 20.4 million people, owe more than their home is worth. This is known as being “upside-down” on a mortgage. And although a reverse mortgage can never go upside-down, an upside-down forward mortgage generally prevents the borrower from qualifying for a reverse mortgage.
Partly in order to combat this issue, the federal government is considering raising the limit at which homeowners with loans owned or guaranteed by Freddie Mac and Fannie Mae can refinance their mortgages. Currently the limit is a mortgage that is 105% of the property’s value. However, more than 1 in 10 homeowners have a mortgage that is more than 110% of the property’s value. Thomas Lawler, an independent housing consultant, is quoted as saying that when a borrower owes 30% more than their home is worth, borrowers are more likely to walk away than refinance. Increasingly, this seems to be the case more and more often.
I wish I could come up with a positive spin on this article, but my hope is simply that the statistics will help spur the state and federal governments to change modification policies and increase the pressure on the banks to grant the short pays and loan modifications necessary to help both keep people in their homes and ensure that they have options while they’re there.