While Michael Stolworthy, a representative from the Office of the Inspector General (OIG) presenting at the NRMLA Reverse Mortgage Annual Conference in San Diego, said that 8% of FHA loans are in default with an additional 5% of the loans 90 days late or more, it appears that the housing industry has a much more serious problem on their hands.
Data released by First American CoreLogic last week shows that 23% of homeowners are underwater. This amounts to nearly 10.7 million households. 5.3 million of those households are tied to homes worth at least 20% less than the mortgage is for. Of these homeowners, more than 520,000 are in default.
If you think these numbers don’t matter to the reverse mortgage industry, think again. Underwater homeowners do not qualify for a reverse mortgage due to the lack of equity in their homes, even though they are the homeowners arguably most at risk for foreclosure. The increasing number of underwater homeowners means fewer people qualifying for reverse mortgages.
Some states have also been hit harder than others. 30% of homeowners in Nevada, for example, owe 50% or more of their home’s value, disqualifying many of them for a reverse mortgage.
With JP Morgan not expecting home prices to hit bottom until 2011, due to the oversupply of properties, the problem of underwater borrowers does not appear to be going away anytime soon. 40% of borrowers who bought properties in 2006, when prices peaked, are already underwater—and so are 11% of buyers who bought homes earlier this year.
But all is not lost. The data also indicated that 24 million homeowners do not owe any money on their homes, and more turn 62 each day.
Write to Reva Minkoff