Deutsche Bank Predicts Half of U.S. Mortgages Underwater by 2011
Reuters reports that Deutsche Bank is predicting that nearly half (48%) of U.S. mortgages will be underwater by 2011. Underwater means they owe more than their home is worth.
Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.
"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.
Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties' value, up from 29 percent, it said.
"The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market.
Bloomberg writes that the report listed several areas where 90% of borrowers may be underwater.
Seven markets in states with the fastest appreciation during the five-year housing boom -- including Fort Lauderdale and Miami, Florida; Merced and Modesto, California; and Las Vegas -- may find 90 percent of borrowers underwater, according to the report.
Buying a home was billed as a wise investment during the last couple decades. Deutsche Bank analysts say, "For many, the home has morphed from piggy bank to albatross."
The Wall Street Journal has an article here that shows the currently percentages of mortgages underwater for each state. Nevada has the dubious honor of being in the lead - 40% of homeowners there are underwater.
