And you're still going down the toilet.
We never had crazy "interest-only" mortgages or next-to-nothing
down-payment options in Canada.
And the way your mortgages are structured is crazy. This story tells of
some boob that got a mortgage in 2008 at over 6%. Shit - back in the
summer of 1999 I got my mortgage for 5.95% here in Canada. That's the
total rate - we don't add all sorts of crazy hidden costs and extra
rates that leave you scratching your head trying to figure out what your
total over-all rate is.
If you're going to reply to this post - don't be a bone-head and
full-quote the entire post (but I know some of you will because your too
stupid or lazy to figure out how to trim quoted text).
Thu Apr 26, 2012 1:12pm EDT
More than 1 million Americans who have taken out mortgages in the past
two years now owe more on their loans than their homes are worth, and
Federal Housing Administration loans that require only a tiny down
payment are partly to blame.
That figure, provided to Reuters by tracking firm CoreLogic, represents
about one out of 10 home loans made during that period.
It is a sobering indication the U.S. housing market remains deeply
troubled, with home values still falling in many parts of the country,
and raises the question of whether low-down payment loans backed by the
FHA are putting another generation of buyers at risk.
As of December 2011, the latest figures available, 31 percent of the
U.S. home loans that were in negative equity - in which the outstanding
loan balance exceeds the value of the home - were FHA-insured mortgages,
according to CoreLogic.
Many borrowers, particularly since late 2010, thought they were buying
at the bottom of a housing market that had already suffered steep
declines, but have been caught out by a continued fall in prices in wide
swaths of America.
Even for loans taken out in December - less than four months ago and the
last month for which data is available - nearly 44,000 borrowers, or
about 7.5 percent of the total, now find themselves under water.
"The overwhelming majority of the U.S. is still seeing home prices
decline," said CoreLogic senior economist Sam Khater. "Many borrowers
continue to be quickly wiped out."
The problem is not uniform around the country. In some areas, such as
Washington, D.C., Miami and parts of northern California, prices are on
the rise. CoreLogic predicts the overall U.S. housing market will
finally bottom out this year.
And the number of homeowners falling under water each month has
decreased significantly since the peak of the financial crisis in 2008
and early 2009. Still, Khater said, since October 2010 average home
prices have fallen 7.4 percent. Overall, CoreLogic data shows that 11.1
million, or 22.8 percent, of U.S. residential properties with a mortgage
are in negative equity, unchanged from the summer of 2010.
According to the S&P/Case-Shiller 20-city composite index, which tracks
home values in 20 major U.S. metropolitan areas, U.S. home prices were
down 3.5 percent in February from a year earlier and are now at their
lowest level since late 2002. Over the past 12 months, 15 of the 20
major metropolitan areas monitored saw declines.
CoreLogic says a significant factor causing recent home loans to slide
under water has been the availability of government-insured mortgages
that require only a small down payment.
These loans, insured by the FHA, require a down payment of as little as
3.5 percent of the purchase price, providing only a small cushion of
protection against a drop in home prices that could drive a borrower
into negative equity.
"This is creating a new wave of underwater borrowers," said Gary
Shilling, a veteran financial analyst and well-known housing market
bear. "We have all three branches of government trying to keep people in
four bedroom houses who can't afford chicken coops."
The U.S. Federal Reserve, in a report delivered to Congress in January,
estimated that 12 million American homeowners had negative equity. Of
those, the Federal Reserve said, 3 million were borrowers with
CoreLogic's Khater said: "Low down payment lending in a weak housing
market and weak economy begs the question whether we are setting up the
FHA to have a multitude of failures down the line."
Jason Opalka took out an FHA-backed loan on his two-bedroom property in
the suburbs of Orlando, Florida, in August 2010. He was helped by
Certified Mortgage Planners of Orlando, who negotiated the FHA-backed
loan with the lender, Freedom Mortgage, based in New Jersey.
Opalka was refinancing another FHA-backed loan he had obtained in 2008,
for $196,000, then at an interest rate of over 6 percent.
Under the refinancing, he borrowed $192,278 at an interest rate of 4.5
percent. Opalka, looking at the paperwork, is still surprised at the
down payment he had to make in 2010, for a property valued at the time
for little more than the loan was worth and in which he had almost no
His down payment was just $3,000 - or about 1.5 percent of the total
Less than two years later, local real estate estimates now value
Opalka's home at no more than $110,000.
"I'm at least $80,000 under water," Opalka told Reuters. "We never
expected to go under water. We never expected prices to fall like they
have. We definitely didn't see this coming. If I'd known this, we
probably would have rented."
Florida has seen one of the greatest drops in house values since the
housing crash of 2008, 30 percent on average since October 2010 and over
50 percent since the height of the bubble in 2006, according to
FHA-insured loans were begun during the Great Depression and have
traditionally been used to enable lower income Americans to get
Historically, FHA loans accounted for 8 percent to 12 percent of the
mortgage market. According to the FHA, this rose to 30 percent in late
2009 and to about 50 percent for first-time buyers at the height of the
FHA officials say they are deliberately reducing their market share of
loans as the private sector increases its lending. The agency share of
home loans is today down to about 25 percent, and will continue to fall,
Charles Coulter, a deputy assistant secretary in the U.S. Department of
Housing and Urban Development, which oversees the FHA, said it was the
FHA's mission to provide affordable housing, particularly in times of
financial crisis when private sector financing dries up.
"We are the only opportunity for borrowers who can't come up with a 5,
10 or 20 percent down payment to get a home," Coulter said.
He said the size of down payments was "an important risk parameter, it's
something we have been evaluating and a factor we will continue to
Coulter said beginning in 2009, FHA took a number of steps to tighten
qualification standards for the government-insured loans.
In January 2009, the minimum down payment for an FHA loan rose from 3
percent to 3.5 percent, and the upfront premium for mortgage insurance
has also been raised.
In October 2010, only borrowers with a credit score of 580 or above
could get a loan with a 3.5 percent down payment. Those with credit
scores between 500 and 579 faced a 10 percent down payment. Those with
credit scores below 500 do not qualify for an FHA loan.
FHA officials say the credit score of the agency's average borrower is
A Fair Isaac Corporation score - known as FICO and the standard
evaluation of creditworthiness in the United States. - of less than 620
is usually considered sub-prime.
Manny Bongiovanni, a mortgage broker in Phoenix, who has processed
mainly FHA-backed loans in recent years, said most such loans were
issued at a 30-year, fixed low interest rate.
"Most of the people I have dealt with have ended up paying less on their
monthly mortgage payments than they were when they rented. The good
thing is, we have got lots of young families into these homes.
"And if they stay put, they will eventually get equity."