When a real estate professional says a home is under-water, they are referring to mortgage that is greater than the home’s value.  Americans continue to struggle to make their mortgage payments on time and many homeowners have discovered that their property’s value has declined so significantly that their mortgage loans are under-water.  

Under-Water Home Mortgages

Zillow published a recent report that indicated that more than 20% of U.S. mortgage loans are currently underwater.  This is one of the reasons why so many banks are extending loan modification plans in such a great volumes.  The mortgage lenders are focused mostly on modifying mortgages for homes in these distressed states.  Besides, very few of borrowers in Arizona, California, Florida and Nevada qualify for fixed rate mortgage refinancing.

Miami-Fort Lauderdale property values saw a year-over-year decline of 15.2%, while values in Phoenix, Arizona, fell by 11.8 %. Despite the high percentage of negative equity, the 2^nd quarter rate 21.5% is actually lower than from the 1^st quarter figure of underwater home mortgage loan, which was reported at 23.3 %. However, some areas that benefit from both state and federal tax credits have seen home values increase, the report shows. For example, the state of California saw values rise by 27.8 %, marking five consecutive quarterly increases.

Economists continue to examine the devastation that underwater mortgage loans have influenced.  They like this study because it remains a strong indicator of forecasted home foreclosures. In addition to not being able to afford home loan payments, some homeowners who are unable to modify their mortgages are strategically defaulting on their home loans.  This means that they are walking away from their homes and letting the bank repossess their property.  “It is the paramount challenge facing housing markets,” Zillow’s chief economist Stan Humphries told Reuters. “We already have had record levels of foreclosure and, combined with high unemployment, negative equity is very toxic to the market.”

Though fewer Americans are strategically defaulting on their mortgage loans, foreclosure rates continue to increase with RealtyTrac reporting a first-quarter foreclosure rate of 1.65 million. Analysts project that the number of mortgage defaults, repossessions and scheduled auctions are likely to reach 3 million by the end of the year

Homeowners continue to report struggles with the loan modification process and with so much mortgage relief talk around the nation many consumers want to know what is going on.  According to former Ditech.com executive, Jeff Morris, “Many homeowners simply do not have enough income to justify the lenders extending a loan modification.”  Morris continued, “If a borrower can’t document their income at all, it is very unlikely that the banks and lending companies will approve them for a loan modification.  Morris made it clear that borrowers do not need to be under the 50% Debt to Income Ratio (D.T.I.) like they do to qualify for a mortgage refinance.  He said that D.T.I. from 70 to 95% is pretty common for loan modification agreements this year. Alarming Numbers on Foreclosure Crisis
More than 1 million homes expected to be taken over by mortgage lenders in 2010, yet thousands of homeowners report relief from the loan modification that they were approved for. Second mortgage lien stripping has also been a common practice for bankruptcy lawyers. Getting approved for a second mortgage modification has become trickier than many borrowers had hoped.  Another problem many borrowers find is that the investors are usually different for their first and second mortgage.  This makes the second mortgage modification process.