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Fed Report: Negative Equity Creating ‘Homeownership Gap’
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The growing number of ‘underwater’ homeowners with negative equity has created a gap that is pushing down the overall rate of homeownership, and may require reshaping public policy, according to economists at the Federal Reserve Bank of New York.
The economists’ paper, The Homeownership Gap, released this week on the New York Fed’s website, states that the actual homeownership rate peaked at 69 percent in the third quarter of 2006, and has since dropped to 67.3, driven by the collapse in home prices, the rise in unemployment, foreclosures and the overall financial crisis.
Economists Andrew Haughwout, Richard Peach and Joseph Tracy propose in their paper that the “homeownership gap” is a gauge of the downward pressure on the actual homeownership rate. They define the gap as the difference between the “official” homeownership rate and a “recomputed rate” that excludes owners who are in a negative equity position, or the value of their homes is less than their outstanding mortgage balance.
“Our estimate of this gap suggests that the official homeownership rate will likely experience significant downward pressure in the coming years,” the economists wrote.
In some of the metropolitan areas worst hit by negative equity, “effective homeownership rates are 25 to 45 percentage points below the measured rate,” they wrote.
And this situation “has potentially important implications for the maintenance of the housing stock, the stability of neighborhoods, and future household saving behavior,” the economists wrote.
The economists also echo fears of mortgage industry experts that have recently testified before Congress criticizing the Obama Administration’s handling of its mortgage modification program. The experts said negative equity is being largely ignored.
“Public policy dealing with mortgage modifications can help to support the homeownership rate by reducing foreclosures and facilitating the process of borrowers in negative equity re-saving for a future down payment,” the economists wrote.
“However, the structure of these modification programs is important for their efficacy in this regard. Programs that encourage principal write-down will do more to support the homeownership rate than those that focus exclusively on the monthly mortgage burden to the borrower…”
Loan Modification via Loan Modification Firm VS Total Mortgage Reset With Homeowner Protection Group
Loan Modification With Loan Modification Firm
•Lenders have mastered the Pretend and Extend game prolonging the outcome for months and months for seemingly no reason
•Any loan modification will almost always be done according to the lenders best interest
•Principal reductions are extremely rare with loan modifications
•Lender will require homeowner to defend and disclose every aspect of their financial life
•Even with a successful modification a majority of homeowners will still be upside down (owe more than properties value)
•The proof of financial hardship is an absolute necessity with any loan modification
•In most cases a loan modification will lower your mortgage payment for the agreed upon fee and nothing more
•If the lender’s workout offer does not truly help the homeowner, the loan modification is all but dead
•Throughout the process to obtain a loan modification the homeowner is at the lender’s mercy
•Modifications typically take 6-8 months or more
•Arrearages may or may not be eliminated (in most cases they are moved to the back of the loan)
Total Mortgage Reset With Homeowner Protection Group
•By law, lenders must respond and work on a resolution within 60-90 days
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•HPG guarantees a minimum 10% principal reduction on accepted cases or 100% of fees will be returned
•Lenders are required to defend their business practices; giving the homeowner the upper hand
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•Financial hardship does not necessarily need to exist
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Please contact Mary D
Email marydhpg@live.com
1-570-992-6630
Great post! It is advised to represent troubled home owners with a lawyer when it comes to dealing with lending institutions. They have all the skills to successfully help you lowering your monthly payments.
I studied something again! Thx…
Get a professional to help. This cannot be understated. The process can be very confusing and getting a professional can help alleviate a great deal of stress and frustration. Professional negotiators go over the needs of their clients and try to reach a compromise with the lender. Professionals understand the details that these financial negotiations demand.