Nevada has top rate of upside-down mortgages

Almost half of Nevada homeowners with a mortgage owe more to the bank than their homes are worth.

Moreover, if you add in homeowners like them in California, Arizona, Florida, Georgia and Michigan, they account for nearly 60 percent of all homeowners who are “underwater” on their mortgages.

Nationwide, almost one of every five homeowners with a mortgage owes more to their lender than their property is worth. But if you subtract those states, the rate drops to about one in 10, according to a report released Friday by First American CoreLogic.

The new data underscore not only the staggering scope of the U.S. housing recession but also the challenges that government officials face in designing a massive new program to help homeowners avoid foreclosure, with layoffs soaring and the economy sinking.

Some experts predict the problem will get much worse.

Nationally, home prices are already down about 20 percent from their peak in mid-2006. By the time the housing market hits bottom, prices may be down 40 percent from the top, leaving 40 percent of homeowners underwater, said Nouriel Roubini, economics professor at New York University.

“There is a huge incentive to walk away from your mortgage,” said Mr. Roubini, who has attracted attention for his gloomy - and accurate - predictions of the U.S. financial market meltdown. He gave no forecast for when the real estate market would bottom out.

Another pessimistic analyst, Desmond Lachman of the American Enterprise Institute, said, “Unless there’s government intervention on a big scale … we’re really not going to bottom.”

The problem is much worse in far-flung suburban neighborhoods where builders flooded the market with new homes and buyers put down either small, or no, down payments, said Mark Fleming, First American CoreLogic’s chief economist.

In desirable urban neighborhoods and close-in suburbs, “a lot of people bought their homes years ago. It’s much more difficult for them to be in a negative equity situation.” Mr. Fleming said.

Rising mortgage rates are also making matters worse for prospective borrowers. The rate on a 30-year, fixed-rate mortgage averaged 6.46 percent this week, up sharply from 6.04 percent last week, Freddie Mac reported Thursday.

Higher rates coupled with lower home values means fewer people can tap their home equity. The percentage of U.S. homeowners who pulled cash out of their homes remained at a four-year low in the third quarter, Freddie Mac said.

While some underwater borrowers certainly will lose their homes to foreclosure absent a massive - and successful - government refinancing plan, many will continue to make their payments and wait for values to recover. And, of course, roughly 30 percent of Americans own their homes outright.

Still, it was not clear whether the government would be able to do much for many borrowers in trouble, especially given the amount of time to start up a new program.

“Certainly it can’t hurt,” Bernard Baumohl, chief economist at the Economic Outlook Group in New Jersey. “How much it’s going to help is an open question.”

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