A new report from ratings agency Fitch says the majority of borrowers whose home loans were wrapped into mortgage-backed securities transactions in 2006 and 2007 owe more on their mortgages than their homes are currently worth.
Which means that 60 percent of the remaining performing borrowers — those who aren’t late on their payments and not in foreclosure — are underwater right now.
These figures augur more trouble to come for the U.S. housing market, which had been showing signs of bottoming.
The risk to banks is that borrowers with negative equity loans could decide to walk away from their homes rather than tough it out until the market recovers.
According to the report, increased modification efforts and an extension of the first-time homebuyer tax credit may help home prices, but the ultimate increase in liquidations from the growing distressed inventory will likely cause a further price decline.
The Senate is considering a measure to extend the $8,000 tax credit for first-time homebuyers to all people purchasing a home. The bill would cost $16.7 billion, Dow Jones reports.
The proposed legislation would extend the credit through June 30, 2010, broaden it to all home buyers and raise the income limits — now $75,000 for an individual and $150,000 for a couple — to $150,000 and $300,000 respectively.
T2 Partners Whitney Tilson says the apparent housing recovery is only setting us up for worse things to come.
"The rebound has been stronger than we've anticipated," Tilson told Yahoo! News.
He remains "confident this is the mother of all head fakes."
Tilson attributes the housing upturn of the past few months to low interest rates, first-time homebuyer tax credits, falling prices and seasonality, not by improved market fundamentals.
He also believes there's still supply and demand issues that will hamper the recovery.
“The total inventory is triple what's actually being reported," says Tilson, who estimates there are twice as many homes in foreclosure or near foreclosure that aren't for sale yet.
Though Tilson doesn’t foresee “anther calamity to come” he thinks the housing sector won’t rebound until those homes are off the market — and he does expect another 10 percent decline in prices and no true bottom for the housing market for at least another year.
Experts attribute 370,000 home sales to qualified first-time buyers thanks to the $8000 first time homebuyer credit, which Congressional leaders have pledged to extend past its expiration Nov. 30.
Though some economists take this as a positive sign, others remain skeptical.
"If all you have done is shifted home purchases that would have occurred anyway from the future into the present, that is simply moving home sales around rather than increasing their overall level," economist Kevin Gillen, vice president of Econsult, told The Philadelphia Inquirer.
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