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11 million households
Nearly 10 and 11 million households now have upside-down mortgages, and for the first time ever, mortgage debt is bigger than the total value of homeowner equity [cash invested]—bigger by $836 billion. Even if a small fraction of these borrowers were to default on their mortgages in the near future, either because of negative shocks to borrowers’ ability to pay or due to strategic defaults, it could result in another sharp decline in home prices and impede the ongoing recovery in the housing market.
Out of those 10 million mortgages that are underwater, about 3 million remain “severely underwater,” which means the initial loan-to-value ratio (LTV) is 125% or more (in other words, the value of the mortgage is at least 25% higher than that of the property). While seriously delinquent mortgages (at least 60 days) have declined, the percentage of loans in foreclosure has remained stubbornly high, at about 10% of underwater mortgages.
They spend money they don’t have and they borrow. Where do they get so much cash? How can they buy such fancy cars and big TVs and all this fancy furniture and all these things they’ve got? How can they afford it? They can’t afford it! They buy it on credit. And they’re all in debt up to their ears. Rich people have borrowed themselves into debts that they can never repay. Poor people the same. Middle class people the same. So if the slightest little thing gets out of balance or goes off in any way, the whole thing crashes like a bunch of dominoes!
Ted Rudow III, MA