In what might be called as the "insult to injury housing market," new reports from the real estate industry are bittersweet: there are less underwater homes on the market because of more foreclosures. In other words, foreclosures are steadily recasting underwater homes as foreclosed homes.
Markets improving because of foreclosure
The number of underwater homes on the market decreased from 10.91 million to 10.88 during the period of March 2011 to June 30, 2011, reports CoreLogic Inc.
Negative equity across the country remains central to US housing market trouble. President Barack Obama has been contemplating new measures to help homeowners in underwater homes to refinance. In D.C., there has been no shortage of plans to put the United States on the path to recovery, but negative equity will only be vanquished by good policy and prudent financial decisions in the long-term, say policymakers. It may take decades to get hundreds of billions of dollars in toxic assets, in the form of underwater mortgages, off the private and public ledgers.
Banks show a clear preference when approving refinancing for borrowers
The same CoreLogic study finds that 40 percent of homeowners with negative equity of 125% or greater are paying 6% or more in monthly interest. Compare that to the mere 17% of homeowners with positive equity paying at a similar interest rate. This disparity suggests favorable treatment for homeowners whose homes have remained stable or appreciated in value-a win for homeowners is a win for banks.
Though banks aren't keen on disclosing their operating procedures and practices, consumer advocacy groups around the country have called for banks to stop duplicitous lending practices. For banks, there is simply nothing reasonable about accepting further losses in the form of loan modification or refinancing.
Latest government intervention met with similar challenges as previous interventions
With the Housing Affordable Refinance Program (HARP), the Obama administration and the Federal Housing Authority have pushed Fannie Mae and Freddie Mac to begin refinancing mortgages when the borrower's mortgage is worth 125% or more of the home value.
HARP is designed to help five million people refinance; Feds reported in June that 840,000 homes have been refinanced this way.
Unclear where intervention begins and ends
Freddie Mac and Fannie Mae have continued to press their loan servicers to foreclose on seriously delinquent borrowers. It appears that government strategy, for the time, has multiple prongs: foreclosure, short sale strategies, refinancing, and loan modification-that will bring relief for some homeowners and despair for others.
What is certain, say economists, is that the housing market cannot begin to fully recover until it stabilizes. Very simply, while it is defined by a glut of negative equity homes, no home or neighborhood will be safe from wild swings in value.