‘Underwater mortgages’ continue to plague homeowners

April 27--SEBRING -- Elliott Moses has lived in Lake Placid since 2001. He has a small business and needed a place of his own.

In 2005 he bought a home, expecting to live in it until he "dropped dead."

He said he put down $40,000 for the $149,000 house, but the timing of his purchase conspired against him like many others in his situation.

When Moses closed on the deal, it was the height of the real-estate boom. The real-estate bubble burst a couple of years later, and Moses' home value plummeted.

He still owes $94,645.43 on his mortgage, he said, but estimates his home is worth $40,000.

He said he tried to renegotiate his loan and bring down his $750 monthly mortgage payment, but hit a brick wall. That's when he stopped making payments, figuring his lender would be forced to talk to him.

Moses' situation is familiar to many others who either bought a house during the boom time, refinanced their homes for a larger mortgage or got an equity line of credit when their home values ballooned.

"Of course, the market tanked, they lost their jobs and couldn't service their loans," said Steve Fruit, broker associate with RE/MAX Realty Plus II.

The most immediate impact on the real-estate market from some of these "upside-down" mortgages was a flood of distressed properties for sale that hammered down home prices because these homes typically sell for less than their market value.

While many of the short sales and foreclosures got snapped up by investors or regular homeowners, "seriously underwater" homes remain a problem in Florida, many say.

A new report by RealtyTrac says that 31 percent of homes in Florida were seriously underwater in the first quarter of the year. That means the combined loans amount secured by the property is at least 25 percent higher than the property's estimated market value.

While some homeowners with negative equity continue to live in their homes and make payments, others are either delinquent or in foreclosure.

At 15 percent, Florida continues to lead the country in the percentage of distressed properties, indicating that while the problem has declined it continues to dog the state.

Florida had the highest number of completed foreclosures over 12 months ending February and the highest rate of serious delinquencies, defined as loans 90 days or more past due, according to CoreLogic, a data compilation and processing company.

CoreLogic estimates that the Sunshine State's foreclosure inventory as a percentage of all mortgaged homes is 6 percent, which though the second highest in the nation, is a 3.9 percent drop since last February. The foreclosure inventory represents the number and share of mortgaged homes that have been placed into foreclosure.

Locally, distressed property sales continue to be fairly significant although they have declined.

Fruit said from March 1, 2013 through Feb. 28, 2014, short sales and foreclosures comprised 30 percent of residential property sales in Highlands County, a decline of about 5 percent from the previous period.

"We are still seeing distressed properties," said REMAX Realty Broker Chip Boring. "But not the numbers that we have seen in the past two years."

Realtors say it's hard to tell how many "underwater" or "upside down" mortgages we have in Highlands County unless someone did the math, but Zillow, an online real-estate database, estimates it at about 35 percent for 2013.

The company generated statistics on homeowners' negative equity nationwide, which can be searched according to zip code.

They matched the estimated value of a home to all outstanding mortgage debt and lines of credit. Credit reporting agency TransUnion supplied the data after removing "personally identifying information," the company explains.

Zillow's data estimates that many Highlands County homeowners could be considered severely underwater and are some of the hardest hit nationwide.

Moses, for instance, estimates he has put more into his home than it is worth right now.

According to figures provided by the Highlands County Clerk of Courts, several mortgages were recorded between 2004, the beginning of the real-estate boom in Highlands County, and 2007, which many describe as the year of the crash.

So, there could be several people like Moses out there.

In 2004, the clerk's office recorded 7,415 mortgages and 16,834 total deeds. That number went up significantly in 2005, which saw 24,143 total deeds and 11,055 mortgages recorded.

In 2006, total deeds recorded dropped to 12,481 and recorded mortgages to 9,354. The 2007 figures were 7,624 deeds, of which there were 6,840 mortgages were recorded.

A 2011 study done by Florida Tax Watch, comparing the state's 67 counties' expenses and revenues, gives a telling picture of how the real-estate bubble burst affected not just homeowners but the county's taxing entities.

The county's total property tax levy between 2007 and 2010 plunged by 26.26 percent, the study states. Property tax revenues fell because the appraised values of the properties, which determine how much in ad valorem revenue the government can collect, plunged. Only Sarasota, Hendry, Franklin, St. Lucie, Clay and Lee counties fared worse than Highlands County during the time period.

Fruit said the median sale price of a home in Highlands County during 2005-2006 was five to six times the median income, which ironically, has not changed.

While other places in Florida, like the coastal areas, have seen double-digit jumps in home prices over the last couple of years, which have helped some homeowners recover some of the negative equity, the price increase in Highlands County has been far more modest.

Fruit said the median sale price is back to 2002 estimates. At 2 1/2 times the median family income of $30,000-$32,000, it is also back to being the historical norm, he said.

Homeowners who owe more on their home than it is worth can avail of some government programs.

Announced in September, Florida's Hardest Hit Principal Reduction program is paying up to $50,000 in zero-interest loans toward mortgages of eligible underwater homeowners who have remained current on their mortgage payments.

Cecak Green, spokeswoman for the Florida Housing Finance Corp., which is overseeing the program, said, so far the program has helped seven borrowers in Highlands County with a total of $296,907.

Seventy-seven county residents applied for the money, she said. Florida Housing has distributed $230,594 to the lenders on behalf of the seven county borrowers and $66,313 is on its way to the lender "for approved and closed borrowers," she added.

The application process, which was done online when the program was launched, closed within a week after Florida Housing received 25,000 applications.

Green said they will know more next month whether they will reopen the application process.

Eligible underwater homeowners with Fannie Mae and Freddie Mac-backed mortgages that originated before May 2009 can avail of the Home Affordable Refinance Program or HARP, which has been extended up to December 2015. Fannie Mae and Freddie Mac is responsible for more than 65 percent of all mortgages.

Typically, these underwater homeowners cannot refinance their homes because of a decline in their home's value, leaving them with less-than-required equity in their homes.

"The program is designed to provide these borrowers with an opportunity to refinance by permitting the transfer of existing mortgage insurance to their newly refinanced loan, or by allowing those without mortgage insurance on their previous loan to refinance without obtaining new coverage," HARP explains.

In 2012, the government expanded the program, and since its inception in 2009, there have been more than 3,114,897 refinances completed through HARP, 287,016 of which were in Florida.

The Federal Housing Finance Agency has taken a "number of steps to increase participation in HARP in addition to making enhancements to the program," said spokeswoman Stefanie Johnson.

"Last year FHFA launched a national education campaign on HARP and created a website, HARP.gov, to help inform those eligible homeowners about HARP," she added in an email.

HARP Eligibility

Below are the basic HARP eligibility criteria:

Loan must be owned or guaranteed by Fannie Mae or Freddie Mac.

Loan must have been originated on or before May 31, 2009.

Current loan-to-value ratio -- LTV -- (outstanding mortgage balance/home value) must be greater than 80 percent. There is no LTV ceiling.

Borrower must be current on their mortgage payments at the time of the refinance.

Payment history -- borrower is allowed one late payment in the past 12 months, as long as it did not occur in the six months of the refinance.

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