For underwater homeowners, waiting to inhale
If you're among the 17 percent of Baltimore-area borrowers underwater on a mortgage, you want to know when your home will be worth more than the debt on it.
First American CoreLogic suggests you settle in for a while:
For the typical underwater borrower in the U.S. it will take until late 2015 or early 2016 for negative equity to disappear. In certain markets, it will take another five to 10 years or even longer to return to positive equity. For example, Detroit is not projected to recover even by 2020, because of its depressed economy.
First American has forecasts for several metro areas. Baltimore isn't among them, but Washington is. The firm expects the D.C. area will emerge on the earlier side -- 2015.
Pittsburgh and Lancaster, Pa., on the other hand, are both on the 2020 end.
First American expects that the average loan balance will fall by an annual rate of 3.3 percent over the next 10 years as borrowers pay down principal, while it forecasts that prices will rise by 3 percent annually over that period. That suggests that getting your head above water is a bit more about monthly payments than about appreciation.
When I asked you all about your mortgage situation, 30 percent said your home value is a lot higher than what you owe and an additional 5 percent owned outright with no mortgage. (Always a good feeling.)
But more than half were either close to being underwater or all wet. Twenty percent of you say your home's value is a lot lower than your mortgage balance.
Economists say homeowners are more likely to walk when they get far underwater, so you'll see that I'm not changing the subject when I mention that Bank of America has agreed to lower principal amounts for Countrywide Financial borrowers. (Countrywide was acquired by Bank of America.)
It's part of an agreement with the Massachusetts attorney general, but it affects borrowers nationwide. The Boston Globe reports that the principal-reduction agreement is worth about $3 billion to roughly 45,000 struggling homeowners:
Bank of America officials said the new plan requires the lender to offer qualified borrowers reductions in their mortgages — before offering to reduce their interest rates — in an effort to help them afford their monthly payments. ...
Qualified borrowers whose mortgage debt is 20 percent or more above the value of their homes are eligible for a mortgage reduction over a five-year period. Bank of America spokesman Dan Frahm said that helping these homeowners benefits the lender as well because nearly half of such distressed loans end up going into delinquency.
Banks have resisted the idea of principal reductions. Do you think this is a one-off, or will more follow Bank of America?