The phrase “being underwater” with your mortgage is an apt description of the way it feels to owe more on a home than it is worth. The borrower struggles to get enough air to breathe, all the while being pulled down by an unseen weight.
Lenders seem remarkably callous to this condition, allowing multiple and repeated applications for forbearance or modification to fall on muffled bureaucratic ears.
At the same moment, lenders in Georgia often advertise the home for foreclosure, an inherently unfair practice known in the lending industry as “dual-tracking.” I consider the practice nothing short of predatory. It should be illegal here, as it is in some other states.
So, how many fellow Atlantans are struggling with their home equity?
Despite all the good news lately about increased sales activity, the sobering truth came out last week from the economic team at Zillow Real Estate Research. The group used loan data from TransUnion to calculate home equity based on current outstanding loan balances in the 30 largest metro areas nationwide.
According to the research, just over 1 in 4 American homeowners (25.4%) is in a position of negative equity, meaning they owe more than their house is worth.
Here’s the bad news:
* Nearly half of homeowners in the metro Atlanta area owe more on the combined mortgage balances than their home would likely sell for in the current marketplace, despite recent improvements.
With 47.6 percent of owners “underwater” on their mortgages, they are effectively stuck in their homes and can neither sell nor move to another house until either values rise or balances fall.
Of the thirty metro areas surveyed, only Las Vegas had a worse showing. And then the news for Atlanta gets worse.
Economists at Zillow reasoned that most buyers need somewhat more than a “break-even” sale in order to make a real move in the housing market. I believe they are right:
“Reaching positive equity, even barely, is an important milestone. But things like real estate agent fees and a down payment for the next home traditionally come out of the proceeds from the prior home sale.”
The assumption they used was this: until you have at least 20 percent actual equity in your home, it is unlikely that you can afford to make a move in today’s market, a condition which they describe as “effective” negative equity.
* In the metro Atlanta area, nearly two-thirds of all homeowners find themselves in a position of “effective” negative equity, having less than 20 percent equity or actually owing more than their home is worth. Again, the actual number (64.1%) places Atlanta worse off than every other metro area surveyed, with the exception of Las Vegas.
One particularly discouraging feature of this “First Quarter 2013” report is the methodology used by the researchers. Other such reports estimate current loan balance based on the original loan at the time of purchase.
But many borrowers have been accelerating their payments in recent years, resulting in lower balances than might otherwise be indicated. However, this report used data from TransUnion to obtain actual current balances. We might have hoped such accurate data might reflect additional home equity, but such was apparently not the case.
May I suggest that the Georgia General Assembly look to California for model legislation that forces lenders to abandon predatory practices such as “dual-tracking” and provide some real effort to work with homeowners who can and want to stay in their homes?
It’s called the California Homeowner Bill of Rights, and it’s already helped thousands of owners stay in their homes instead of losing them to foreclosure. Let’s watch and see if anyone under the gold dome is paying attention.
To pose a question or to view an expanded edition of this column, please visit my website at Money99.com. I will post information about the Homeowners Bill of Rights as well.
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