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Millions owe more on their homes than homes are worth
Refinancing will become harder, as will getting a home equity line of credit. Already, sellers are taking much less than the listed price.
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CHICAGO – Joey Goldner always approached real estate with a gardener’s zeal. He’d plant his money in a building, patiently care for it and watch its worth grow. For 30 years, it was a brilliant avocation — right up until the heavy thud of the housing market helped flip Goldner’s mortgage upside down.
Facing debilitating health problems, Goldner refinanced his Chicago-area home repeatedly, only to wind up with a $729,000 mortgage on a house that eventually sold for $450,000.
In real estate circles that’s called being underwater — owing more than the value of a home. Goldner is just now coming up for air.
“I kept refinancing it to pay the mortgage,” he said. “I kept hoping the market would level off. I never imagined this would happen.”
Few did. But an estimated 12 million American mortgage holders now owe the bank more than their homes are worth. And with housing prices still sliding and the credit crunch worsening, the number of so-called upside-down mortgages is expected to rise to record levels.
Within a year, Moody’s Analytics predicts, a whopping 30 percent of all U.S. mortgage holders will owe more on their homes than they are worth. In some California communities, according to real estate service firm Zillow.com, negative equity already is the norm.
The effects of this are many.
The risk of default rises — and it’s good to recall that it was people defaulting on their home loans last year that set much of the current economic crisis in motion. Home equity lines of credit — even for people who pay their mortgages faithfully — will be harder to come by. And woe to those who lose a job or get sick.
“If you have some kind of disruption to your income and you can’t make your mortgage payment, it’s going to be very hard for you to refinance or anything like that,” said Mark Zandi, chief economist for Moody’s. “This was the bedrock of most people’s savings, their home.”
Goldner walked away from his three-bedroom home once he could no longer make the mortgage payments. A friend who is a real estate broker was able to arrange what’s called a short sale — the home was sold for less than Goldner owed, all the proceeds went to the bank and the remainder of Goldner’s mortgage debt was forgiven.
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