Nearly Half of ‘Less Risky’ Mortgages Predicted Underwater by 2011

August 6, 2009

(ChattahBox) — We may have only seen the tip of the ice berg in the housing crisis according to a new report that may confirm concerns about a double-dip recession. The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March” as home prices continue to fall, Deutsche Bank reported on Wednesday. The report says that “prime” “conforming” loans that meet the guidelines of Fannie Mae and Freddie Mac will be most affected. 41 percent will be underwater by the first quarter of 2011, up from 19 percent in 1Q 2009.  Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements. Deutsche Bank also predicted a further drop in home values by 1Q 2011 of 14 percent.Overall, 16 million homeowners are “upside-down” on their mortgages, up from 10 million, or 15% of owner-occupied homes, one year ago. Homeowners with the riskiest mortgages handed out during the housing boom have seen the greatest erosion in equity. They include subprime loans, of which 69 percent will be underwater in 2011 from half of them in March, Deutsche said. Of option adjustable-rate mortgages — which could reduce payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.

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