Bank Foreclosures Blog

Growing Threat Of Negative Equity

The falling house prices caused by the real estate foreclosure crisis have pushed thousands of US homeowners to negative equity.

Negative equity is when a home owner owns a home that is worth less than the value of the mortgage. Negative equity was first created by mortgage companies to increase the number of people that could afford a mortgage; so many borrowers have already started their mortgages with a zero or a negative equity from beginning.

The people most affected are those who bought a home with 0-5% down payment just before the falling of house prices, but with the increase of adjustable mortgage rates and the falling of house prices, more and more people are likely to face negative equity, especially those who bought homes in areas where prices have fallen most steeply.

The main problem with negative equity, especially now, is that lenders won’t take negative equity customers, shutting down any possibility of refinancing or selling. Numbers are alarming and if the trend of negative equity continues the housing crisis can get even worse and the number of foreclosures can rise even more.