The Big Story Blog

Crawling out of the mortgage mess

Posted at 6:20 AM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

(MPR Photo/Annie Baxter)

We were supposed to be out of the mortgage mess by now. But five-plus years since real estate values began to decline, many homeowners in Minnesota and the nation are still struggling with the housing market's collapse.

One of the biggest continuing worries: More than one in five Minnesota houses with a mortgage are under water or close to it, meaning the debt owed on the house is greater than the house's current value.

With new promises from the Obama administration to do more, we're going to spend the day digging into the current state of the mortgage mess.

Any experience with mortgages or refinancing in Minnesota the past few years? Tell us. Post below or click here and share your story with us directly. It'll make us all smarter.

Here are some of the things we know this morning.

1.) Aid to 1 million more homeowners. President Obama officially unveils his plan to expand help for those who owe more on their mortgages than their homes are worth, a situation known as "negative equity."

Some media got an early look at the plan. The Washington Post writes:

Previously, you had to owe less than 125 percent of the value of your home to take advantage of the Home Affordable Refinance Program. Now HARP is opening up to borrowers who owe more than 125 percent of the value of their homes -- which describes many homeowners in Florida, Nevada and Arizona. What's more, Obama doesn't need Congress' permission to act.

So how much impact will this new program have on the broader economy? Not a whole lot, in all likelihood. The Federal Housing Finance Agency estimates that 800,000 to 1 million homeowners could take advantage of the new program.

2.) Stubborn numbers. While some aspects of the housing market have improved, the data on underwater mortgages has stayed frustratingly consistent during 2010 and 2011.

Here's a look at the September CoreLogic data at the Calculated Risk blog.

Here's the same chart by Calculated Risk from November 2009

Despite all the efforts to help struggling homeowners, the percentage of homes underwater or nearly underwater in Minnesota hasn't moved much in two years.

3.) Negative equity hurts. It's no secret the housing markets have been a mess in the recession and now during the "recovery." As we noted earlier this year, the parlor game is guessing when "normal" returns. The CoreLogic data tell us that many problems remain just below the surface.

Underwater mortgages are a problem for the whole market. It starts many on the road to foreclosure, which creates layers of new problems.

"Negative equity holds millions of borrowers captive in their homes, unable to move or sell their properties," Mark Fleming, chief economist with CoreLogic, said in a prepared statement last spring. "Until the high level of negative equity begins to recede, the housing and mortgage finance markets will remain very sluggish."

And until the housing and mortgage markets regain their footing, it won't be much of an economic recovery.

About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.

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