What Good Are Lower Mortgage Rates If Homes Are Underwater?

Disappearing equity is a growing problem as more homes continue to sell at discount prices due to short sales and foreclosures. More importantly, this problem is an issue which affects everyone whether they have bad credit or good credit. Unfortunately, the real concern with negative equity issues is that it has really taken its toll on the dream of owning a home.

Negative equity is traditionally a significant obstacle when it comes time to refinance, so the government has expanded its mortgage refinance program to allow loan to value ratios as high as 125%. But due to the recent downturn in prices, some borrowers may still exceed this expanded ratio--while others are beginning to not even care.

Current Mortgage Rates Meaningless To Some As Home Prices Fall

Traditional foreclosures are typically a result of job losses, reduced incomes, divorce, disability, or other financial challenges. On the other hand, voluntary foreclosures are almost business-like decisions where homeowners accept their losses, and simply walk away. As negative equity issues continue to plague homeowners across the nation, more homeowners are starting to feel like their mortgage is turning into a losing battle. Even with the harsh criticism from homeowners affected by these foreclosures, borrowers are fatigued by the stress and discouraged by their disappearing equity. At this point, foreclosure becomes their "best" financial move.

For the moment, lower mortgage rates are still helping struggling homeowners save money and hold onto their homes. However, statements from analysts such as Deutsche Bank seem to indicate that negative equity problems may continue for quite some time. In its latest statement, the bank claims to expect almost half of all homeowners to be underwater on their mortgages by 2011. If fulfilled, this would have a tremendous effect on more prime borrowers who were once considered immune from the recent mortgage crisis. One thing is for sure, even though lower mortgage rates are always welcomed by homeowners, there's no guarantee lower rates will solve the growing problems at hand this time around.