Sam Gendusa July 7, 2014

Newsletter - July 2014

Last month in this newsletter, I broke down the two main viewpoints on the coming HELOC resets. Well, it turns out that maybe the doom-and-gloomers were on to something after all. New numbers from a Black Knight report suggest that a worse-than-expected 40% of mortgages poised for reset are currently underwater. That's a total of 800,000 mortgages.

Black Knight’s Manager of Loan Data, Kostya Gradushy, had this to say about the numbers:

We have seen a continual reduction in the number of underwater borrowers at the national level for some time now, but modified loans [subject to HELOC resets] show a different picture. Given that the data has shown quite clearly that equity -- or the lack thereof -- is one of the primary drivers of mortgage defaults, these resets may indeed pose an increased risk in the years ahead.

So go ahead and count that as a point for those worried about the resets. And there are some other numbers that might lend even more credence to the "head for the hills" mindset:

  • Underwater mortgages at the national level: 9.4%; Underwater mortgages subject to rate resets: 40%
  • More than 10% of all homeowners have "near negative equity" (i.e. less than 10% equity in their homes)
  • Month-over-month change in delinquency rate for April 2014: +1.84%

Of course, that more foreclosures are on the horizon is not a shock. The main question seems to be: How big of a deal are these resets? Black Knight provides us with a reason to be cautious, though the arguments from the “this will blow over crowd” still hold sway. Don’t head for the hills just yet.

Here are the main questions for YOU:

  • What preparations do I need to make in light of the rate resets?
  • Am I prepared to handle more possible defaults?
  • Do I have the infrastructure in place to handle the paperwork on the horizon?

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