Forecasts for Underwater Owners

FOR the New York City area's underwater homeowners - that is, those whose mortgage debt exceeds the value of their homes - this could be a very long decade.

According to a report released last month by First American CoreLogic, www.facorelogic.com a real estate consulting business, these homeowners may not begin to see positive equity until 2017, possibly even later.

Sam Khater, a senior economist at First American and the author of the report, said the average shortfall was 39 percent. He predicted that housing prices would stabilize, then rise slowly over the next seven years, but that owners would recover equity mostly by paying down the loan during that time.

Recovery forecasts, Mr. Khater said, are based on historical data from housing market cycles and the average home-price appreciation over the last 30 years.

"The danger is that seven years might be a little optimistic," Mr. Khater said, referring to the predicted recovery time for New York's underwater borrowers. "We may not revert to the average long-term appreciation in the next five or six years."

One big question mark, he said, is how mortgage rates will fare.

Rates and terms have been more generous recently for those taking out jumbo mortgages, or loans of more than the $729,750 tristate region threshold, but it is unclear whether this trend will continue. If it doesn't, sales could lag in the New York area, which has an abundance of high-priced homes, Mr. Khater said.

Robert S. Duquette, president of the New York Association of Mortgage Brokers, took issue with this time frame. "The economy already seems to be bouncing back ahead of a lot of projections," he said. "Even though it won't happen overnight, I think it is very pessimistic to think it will be seven years."

The average mortgage holder in the New York area has a loan of 70 percent of the home's value, Mr. Khater said. (There are no estimates for the number of homes owned outright, but about half of the homes in the United States are not mortgaged.)

Of the roughly 1.1 million mortgage holders in the New York City area, including sections of northern New Jersey and Westchester County, about 116,000, or over 10 percent, are underwater, according to First American.

That percentage is lower than in other areas. First American estimates that over all more than 11.3 million, or 24 percent, of mortgage holders have negative equity. Among areas with the most is Detroit, where borrowers may not be in the black until 2020. New Yorkers in this fix are actually in worse shape than many others. The average underwater mortgage in New York exceeds the home's value by 39 percent, versus 34 percent nationally.

A new program being used by some lenders since January could help borrowers recover more quickly. The program, RHReward.com, administered by the Loan Value Group of Rumson, N.J., identifies distressed borrowers whom it considers at risk for "strategic default." Such borrowers might simply abandon their homes, even though they can afford the monthly mortgage payments, because they fear the homes may not fully recover their value anytime soon.

Loan Value Group will, on a lender's behalf, offer to forgive part of the loan balance, pending the retirement of the mortgage through a refinance, a sale or the payoff of the remainder.

Say a borrower owed $400,000 on a home now worth $300,000. The lender might tell the borrower that if he could sell the home for $350,000, or find a new mortgage for $350,000, he would fulfill his obligation to the bank. If the borrower fully repaid the loan at $400,000, he would receive a check for $50,000.

Loan Value Group helps identify the borrowers best suited for such offers, and also calculates an amount most likely to avoid each borrower's default.

Frank Pallotta, an executive vice president of the Loan Value Group, declined to identify the three lenders already sending such offers to borrowers.