Underwater Mortgages Are Still Out There

A lot of the media coverage of homeowners owing more on their homes than the home is worth has faded into the background lately. An article over at Zillow.com has some recent statistics that show there are still a lot of people in this underwater situation. More alarming is that almost a million of them owe twice or more what their home is worth. From that article:

• The peak underwater mortgage period was back in 2012, but the number is down by about half in 2015, to 15.4 percent of mortgages or 7.9 million homes.
• 11.8 percent of those homeowners, or 930,000, owe twice or more what their homes are worth.

That's a pretty alarming statistic, as these homeowners are looking for light at the end of a very long tunnel. With most predictions of future home appreciation holding in the small single digit range, it's going to be a very long time before these homeowners reach a point of equity equal to the mortgage balance.

Some people are questioning why these homeowners do not just walk away. Many just do not want the stigma of defaulting on their obligations and a foreclosure on their records. If they are employed without any pressure to move out of the area, they could be just comparing their payment to rent. With rents rising in many markets, it is simply easier to stay where they are and keep making those mortgage payments while hoping for a miracle.

However, economies are in flux, and there are going to be some of these homeowners pushed into a must-move situation. It will usually be to get a better job or to replace one they lost. When they hit this wall, it can be a pretty bleak situation. Most will see foreclosure as the only way out, and for some that will be the case. However, short sales could gain some ground in helping these homeowners to transition without a full foreclosure on their records.

Investors and Underwater Short Sale Opportunities

Some of these homes will be candidates for a short sale. This is when an offer is made to purchase a distressed home for less than what is owed on the mortgage. When the crash was in full swing, lenders weren't really dealing well with short sales. They had well-established procedures for foreclosure and plenty of those to deal with. Reports were that only about a quarter of short sales managed to reach the closing table from 2007 through at least 2010.

However, once the banks got a better hold on their foreclosure inventories, they began to look more favorably on short sales. Some major lenders even sent out letters to selected borrowers encouraging them to find a buyer and submit a short sale offer. They realized that in many cases their losses would be lessened in a short sale situation. Another benefit is the home is occupied, not abandoned and in poor condition or stripped.

Investors will need to be creative in locating these opportunities, as there isn't a website or resource dedicated to publishing information about underwater loans. However, once some of this activity is happening in an area, it's usually going to signal that there will be more homes in that area in the same situation.

Cultivating a resource in a company or agency working with owners trying to refinance their way out of this situation is a good way to locate deals. When they are unable to get that refinance, the investor's lender resource can give them the investor's contact information to see if they can get help through a short sale.

One of the greatest things about real estate investment is that in every market and economic situation there will be opportunities for the investor.