Thirty-six percent of Montgomery County homeowners have negative equity, according to figures from national real estate company Zillow Inc. The problem was highlighted by a visit from Sen. Sherrod Brown, D-Ohio, to Dayton today.
Having negative equity, or being “underwater” on a mortgage, is when the mortgage balance exceeds the worth of the property.
Brown came to Dayton Area Board of Realtors this morningto support his proposed bill to require lenders to respond in a more timely manner to short sales to help the issue.
A short sale is a type of debt settlement in which the home is put up for sale and the lender agrees to accept less for the home than the amount still owed on it. Short sales are an option for homeowners who can’t afford their mortgages or are underwater.
It is a complicated and lengthy process that takes an average three to five months to complete, according to Brown’s office.
It took one local homeowner nine months to finish a short sale on his Huber Heights home. Nick Gusman sold the house in 2012 for less than he bought it.
After Gusman was laid off in 2008 from General Motors in Moraine, the bank at one point told him he’d have to go into default before they could do anything. The actual back and forth between him, his realtor and the bank took several years and the house was listed for sale for two years due to the delays.
He held on to piles of paperwork. If a deadline was missed to turn something into the bank, the process would have to start over.
“They always threaten you with a penalty,” Gusman said.
Many homeowners found themselves underwater following the national housing market collapse that dropped property values in recent years. Job loss excaberated the problem because underwater homeowners who can’t afford their mortgage have a harder time selling the home.
Montgomery County property values are still 26 percent below their peak, according to Zillow.
In surrounding counties, underwater mortgages are 31 percent of home loans in Clark County, 23 percent in Greene; 24 percent in Miami, 23 percent in Preble and 24 percent in Warren.
Overall about 1 in 4 Ohio homeowners are underwater, or 25 percent.
Values are improving as the housing market gains steam. Nationwide almost 28 percent of U.S. homeowners with a mortgage were underwater at the end of 2012, also according to Zillow. At the end of 2011, it was 31 percent of U.S. mortgages.
Negative equity is being driven down by improving home prices, which trickles down to higher property values, a trend Zillow expects to continue into 2013.
Underwater homeowners are more at risk for foreclosure. They have more difficulty selling their homes because they can’t get a high enough sales price to pay the loan off without coming up with the cash themselves.
Brown is reintroducing a bill this session of Congress requiring lenders to respond within 30 days.
Real estate experts say short sales are preferable to foreclosure because in a short sale, a property is typically in better condition. Homeowners often still live there. Because short sale properties are in better shape, lenders and investors recover more of the value.
However, “short sales are anything but short,” Brown said in a conference call to reporters earlier this week.
Once a buyer makes a written offer, it’s common to have a break down in communication between the loan servicer and the buyer, Brown said.
“It means homes aren’t being sold even when there’s a willing buyer or willing seller, when there’s demand in other words. It means that potential buyers who simply can’t wait weeks, and weeks … walk away. It means sellers who may need to move for a new job either don’t move or they take a huge financial hit,” he said.
Brown’s proposed bipartisan legislation would require lenders to give written responses — a rejection, acceptance, counter offer, or request for extension — within 30 days or face a penalty.