Underwater mortgages percentage drops to 21.5

Underwater mortgages percentage drops to 21.5
Fewer homeowners are burdened with underwater mortgages this year when compared to statistics from 12 months ago in 2009, according to a report released today by Zillow.com (via Reuters). Here’s the skinny: “The percentage of American single-family homes with mortgages in negative equity fell to 21.5 percent in the second quarter from 23.3 percent in the first [...]

Fewer homeowners are burdened with underwater mortgages this year when compared to statistics from 12 months ago in 2009, according to a report released today by Zillow.com (via Reuters).

Here’s the skinny:

“The percentage of American single-family homes with mortgages in negative equity fell to 21.5 percent in the second quarter from 23.3 percent in the first quarter and 23 percent a year ago.”

The term “underwater” describes homeowners who owe more money on their mortgages than what their homes are really worth.

The Smith’s, for example, took out a $250,000 loan on a house in 2003 that now appraises for $190,000. They are, therefore, underwater to the tune of about $60,000.

Underwater mortgages are bad because it limits what the homeowners can do if their finances take a hit. Refinance? Not allowed. Sell? Maybe, but be prepared to cut a very large check at closing.

So the good news is that the number of upside-down homeowners is down a few percentage points, which means that more of them have options at their disposal.

One might also speculate that home values were beginning to correct after a drastic free fall. But the report warns that home values will likely continue to fall until the end of 2010.

If and when that reaches bottom, expect the percentage of underwater mortgages to start dropping significantly shortly thereafter.

It can’t happen soon enough.