Last week Patrice noted that, roughly a decade after the peak of the U.S. housing bubble, millions of mortgaged residential properties are still in negative equity, or “underwater.” As of the fourth quarter of 2014, reports CoreLogic, the number stood at 5.4 million, or 10.8 percent of all mortgaged homes nationwide. Those figures represent a significant decline from the fourth quarter of 2013, when 6.6 million mortgaged homes — or 13.4 percent — were underwater. Unfortunately, there could be fresh housing trouble on the horizon.
Over the next several years, a large number of home-equity-line-of-credit (HELOC) loans that were originated at or near the peak of the bubble will “reset,” meaning that the borrowers will have to start making fully amortized payments rather than interest-only payments. According to RealtyTrac, a majority (56 percent) of the potential HELOC resets between 2015 and 2018 — more than 1.8 million in total — “are on residential properties that are seriously underwater,” including 62 percent in 2016 and 60 percent in 2017. By comparison, the share for 2014 was only 40 percent. (RealtyTrac considers a property seriously underwater if “the combined loan to value ratio of all outstanding loans secured by the property is 125 percent or higher.”)
As RealtyTrac vice president Daren Blomquist said earlier this month: “We are entering a period of higher risk over the next four years when it comes to resetting bubble-era HELOCs — especially given slowing home price appreciation that offers underwater homeowners less hope of recovering their equity in the short term.”