Homeowners Who Took Out Second Mortgage More Likely to Be Underwater
June 13, 2011
Almost 40 percent of homeowners who took out second mortgages are underwater on their loans, more than twice the rate of owners who didn't take out such loans. The finding, in a report released by real estate data firm CoreLogic Inc., illustrates the consequences of easy borrowing amid the housing boom's inflated prices. By contrast, 18 percent of borrowers who don't have these loans were underwater, says the Wall Street Journal.
Second mortgages are weighing on a fitful recovery, in which housing has figured as a particularly weak spot.
- The S&P/Case-Shiller National Index last week showed that home prices tumbled 4.2 percent nationwide in the first quarter, its third straight quarter of price declines after a modest recovery in early 2010.
- Nationwide, prices have fallen 34 percent since their peak in 2006.
- The inventory of unsold homes will take 9.2 months to sell, the National Association of Realtors said recently, about 50 percent higher than what is considered a healthy level.
- Borrowers with second mortgages had deeper levels of negative equity -- an average of $83,000 compared with $52,000 -- than borrowers without second mortgages.
According to Federal Reserve Board data, homeowners took out a total of $2.69 trillion from their homes at the height of the housing boom between 2004 and 2006. That tally includes cash-out refinancings, says the Journal.
Source: Robbie Whelan, "Nearly 40% Who Borrowed Against Homes Are Underwater," Wall Street Journal, June 7, 2011.
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