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Florida Homes Swimming Underwater

Armen Hareyan's picture

Here is the good news: close to 49% of homeowners in the United States, about 23 million families, have around 25% equity in their homes. Even better news, 12 million homeowners have close to 50% equity. From here to the end of the article, there is only bad news in terms of homeowner equity. More than 11 million homeowners, which equals approximately 25% of all those families in the nation who carry mortgages, are underwater.

As almost everyone knows, Florida was among states hardest hit by the housing bubble, As a result, our mortgage statistics are alarming. First American CoreLogic informs us that In Broward County, fully 54% of all mortgages suffer from what is known as “negative equity,” where the homeowner owes more on the house than it is worth.

Palm Beach County, the place that many people think of as the winter playground for the rich and famous, shows an underwater rate of 45%. That means more than 157,000 homeowners owe more than they can sell their homes for.

At the top of the state, things don’t look much better. Jacksonville shows an underwater rate of 44%. Another 6%, more than 16,000 homes, were close to negative equity.

Negative equity is a deadly financial illness that affects not only the financially strapped homeowner, but also the bank that carries the mortgage and ultimately, the neighborhood in which the home is located. Because when these negative equity homes are neglected or abandoned, the value of other homes in the neighborhood falls.

While, selling a negative equity home may allow for some relief of a homeowner’s tension, it usually creates a financial hardship for the home seller. When a short sale occurs, the seller gets no money when the sale closes. The bank gets a fraction of what it lent out, which means it has less money to lend to those who will need homes in the future.

Negative equity also creates a drag on economic growth. Without equity, homeowners cannot borrow against their homes to spend on other aspects of life that power the general economy. If these consumers are not out shopping and spending, businesses and stores close and people lose jobs. Naturally, homeowner mobility is vastly affected. When homes don’t sell, people can’t move.

For those who stay in their homes and continue to pay their mortgages despite negative equity, their lives may be relatively unaffected. But for people who must move because of job changes or job or income losses, selling a home with negative equity can turn into a financial nightmare.

Homeowners who must sell negative equity homes, and who want to avoid a short sale, are faced with no choice but to bring money to the closing table.

But those who are not in that kind of financial position will have to resort to a short sale. Anyone who has undergone this process knows it is anything but short. It typically takes the bank that holds the mortgage a minimum of 45 working days to respond to an offer to purchase.

In addition, there is a minimum 2 year credit hit that will adversely affect the short seller’s ability to buy a car, purchase another home, or obtain credit of any kind without paying very high interest rates.

While the Federal Government has discussed a $1.5 billion bailout fund to help underwater homeowner, that is not even close to the amount of money that is needed to help the millions of families who face the prospect of losing their homes.

Written by Marc Jablon, Realty Associates / 561 / 213 – 6139

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