Nearly a Quarter of U.S. Homeowners Are Underwater on Mortgages

Nearly 23%, or 10.7 million homeowners are underwater on their mortgages, according to data from First American CoreLogic, a real-estate information firm. In other words, they owe more on a mortgage loan than their house is worth. Having negative equity in your home can keep you from getting a reverse mortgage.

Over half a million of people underwater on mortgages also have received notices of default. Many of these people may eventually end up in foreclosure.

Seniors with Negative Equity

Senior citizens who have negative home equity generally won’t be able to borrow with a reverse mortgage. But Bank of America has piloted a program with a handful of homeowners that allowed them to get reverse mortgages even though they have negative equity.

The reverse mortgages were given to seniors who had pay-option adjustable rate mortgages and were seriously at risk of foreclosure. The bank wrote down part of the balance owed on their loans, then paid itself the with proceeds from the reverse loans. That differs from other reverse mortgages that pay money directly to borrowers.

Reverse Mortgages for Borrowers with Option ARMs

Option ARMs allowed borrowers to choose from several payment structures. Many people who took out these risky mortgages chose to make minimum payments that didn’t even cover the monthly interest. In many cases, homeowners with these loans find themselves owing more on their mortgage loans than they originally borrowed. Of course, everyone counted on rising home values to take care of the problem, and very few had a plan B in case this didn’t happen.

While it’s not clear at this point if Bank of America plans to extend this reverse mortgage program, it could provide a solution to the growing number of seniors who find themselves underwater on mortgages.

However, if you still have home equity but worry about eventually falling into negative equity territory, perhaps a reverse mortgage can help. Compare quotes from several reverse mortgage lenders to learn more about these loans.

This entry was posted on Tuesday, November 24th, 2009 at 8:56 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.