Those that have bought their homes in the last 2–3 years may be in danger of having paid more than their house is worth. Purchasing a home is never a dead on investment to be profitable in the short term, although it tends to be the largest asset most American have during their lives. Investors Business Daily has an article out that goes into great depth on what these homeowners face in the near term.

A recent study estimates that 9.4% of all mortgage borrowers as of September had no or negative equity in their homes. That jumped to 29% of owners who took out first mortgages last year.
So borrowers with about $800 billion in mortgages owe more than their homes are worth, says First American Real Estate Solutions.
Borrowers with adjustable-rate mortgages face higher payments, especially those paying special “teaser” rates. In the past, they could simply refinance, perhaps getting a new teaser rate. But they won’t be able to if their homes are worth less than the mortgage.
First American estimates that $297 billion worth of 2004-05 adjustable-rate first mortgages could end up defaulting — resulting in $110 billion in lender losses.
“It won’t break the economy and it won’t break the real estate market, but if you’re involved as a lender or borrower, it could be painful to you,” said study author Christopher Cagan, director of research and analytics at the unit of title insurer First American. (FAF)
Typically, a small share of homeowners will have negative equity. That’s especially true in the first few years, when loan payments are comprised mostly of interest.

Read the rest at Investor’s Business Daily

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