New Jersey Real Estate Report

From the WSJ:

Citi Pushes Foreclosure Alternative

Mortgage lenders are trying to arrange smoother departures for distressed homeowners who can’t be saved by loan modifications–and discourage them from trashing the homes on their way out.

CitiMortgage, a unit of Citigroup Inc. (C), announced Wednesday a pilot project that will let some delinquent borrowers remain in their homes without making mortgage payments for six months if they voluntarily transfer ownership to the bank.

Over the past two years, millions of foreclosures have been delayed by state and federal programs requiring lenders to try to keep borrowers in their homes by easing their monthly payments. But the moment of truth is approaching for hundreds of thousands of households that sought help under the Obama administration’s Home Affordable Modification Program, or HAMP, launched a year ago, as well as borrowers who have sought help through other programs.

“We are concerned that if there is a foreclosure glut at some point in the cycle it would have to have a negative impact on house prices,” and Citi’s pilot program should help prevent a build-up in foreclosed homes, said Sanjiv Das, the chief executive of CitiMortgage in an interview.
…
The CitiMortgage pilot program provides incentives for more borrowers to use a procedure known as a “deed in lieu of foreclosure,” in which the borrower voluntarily transfers ownership of the home to the lender, which then cancels the mortgage debt. Aside from letting such people stay in the homes for six months, CitiMortgage says it will give them at least $1,000 to cover relocation costs, an incentive sometimes dubbed “cash for keys.”

Mr. Das said, “Something formally needs to be done in addition to the modifications. We are in a different stage of the housing cycle. Restructuring mortgage payments was part one of the cycle, making sure that foreclosure glut doesn’t hit the industry is part two of the cycle. Citi is trying to stay ahead of it.”

The pilot program is available for certain people whose mortgages are owned by CitiMortgage in Texas, Florida, Illinois, Michigan, New Jersey and Ohio. The bank should benefit by avoiding legal costs and reducing the time homes are left vacant and exposed to vandalism. Participants will be required to “maintain the property in its current condition,” the bank said. It plans to expand the program if the pilot is successful.

From the Washington Post:

Mortgage officials try exits softer than foreclosures

Seeking alternatives to the nation’s struggling foreclosure prevention efforts, federal and mortgage industry officials increasingly are looking for ways to get distressed borrowers to leave their homes voluntarily, without going through the expensive foreclosure process or a messy eviction.

Citigroup, for instance, plans to announce a pilot program on Thursday that would allow delinquent borrowers who don’t qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition. The bank estimates that up to 20,000 borrowers in Texas, Florida, Illinois, Michigan, New Jersey and Ohio could be eligible.
…
Moody’s Economy.com has forecast that the number of short sales and transactions in which borrowers surrender their deed in lieu of foreclosure will increase more than 50 percent, to about 490,000, this year. That is just a fraction of the 1.9 million homeowners Moody’s has forecast will lose their homes to foreclosure this year, up from 1.7 million last year.

From the Star Ledger:

CitiMortgage offers option for N.J. homeowners in default

The fourth-largest mortgage servicer in the country is offering homeowners in New Jersey who are 90-days late on their payments a chance to walk away with cash.

CitiMortgage, a unit of Citigroup, will announce today a trial program that lets borrowers remain in their homes for six months after signing a deed-in-lieu of foreclosure contract — so called because owners agree to hand over their homes to the lender.

These borrowers also will receive at least $1,000 in relocation expenses.

“Basically, the lenders are giving defaulted owners cash for their keys,” said James Bednar, who writes a real estate blog at njrereport.com.

He said some participants could eventually end up saving as much as $20,000 after relocation expenses and mortgage payments.
…
Real estate agents also said the program could have an adverse effect on New Jersey’s already troubled housing market by driving down prices.

“They’re going to have to be at a lower price than everyone else,” said Sal Poliandro, a Saddle River-based real estate agent, of the homes that will eventually go up for sale. “Not only are they going to have these houses on the market, they are going to be encouraged to sell them quickly.”

From HousingWire:

Fitch Says Prime Jumbo RMBS Near 10% Delinquent

The performance of US prime jumbo loan performance within residential mortgage-backed securities (RMBS) slipped again in January as serious delinquencies (60+ days past due) rose for the 32nd consecutive month and edged closer to 10%, according to the latest market commentary from Fitch Ratings.

Prime jumbo loan delinquencies began to rise in Q207 but accelerated since then. In 2009, the rate of delinquency nearly tripled during the year. The serious delinquencies rose to 9.6% in January from 9.2% in December.

“The new year has brought no relief from declining jumbo loan performance,” said Fitch managing director Vincent Barberio. “The trend line for delinquencies indicates the 10% level could be reached as early as next month.”
…
California spearheaded the rising delinquencies, jumping to 11.3% in January from 10.8% a month earlier. The state represents 44% of the $381bn prime jumbo RMBS market.

Four other states rounded out the top five in terms of highest volume of prime jumbo loans outstanding. New York, which represents 7% of the market, saw delinquencies rise to 6.1% from 5.8% the month before. Florida, representing 6% of the market, rose to 16.6% delinquent, from 16%. Virginia, representing 5% of the market, jumped to 5.6% delinquent from 5.4%. And New Jersey, representing 4% of the market, grew to 7.4% delinquent, from 7.1%.

From the LA Times:

Prime jumbo loan delinquencies still rising, report shows

People who hold jumbo loans on pricey U.S. properties continued to struggle in January as more Americans lose their jobs and property values have plummeted, according to a report released Monday.
…
“The deterioration in performance is really the combination of two things going on: rising unemployment that took place throughout 2009 as well as our estimate that about a third of all jumbo loans that are current are underwater in terms of the value, so [borrowers] owe more on their properties than they are worth,” Fitch managing director Vincent Barberio said. “As more of these loans become delinquent, they ultimately will come into foreclosure.”
…
Prime jumbo loan delinquencies began to rise in the second quarter of 2007, but accelerated in 2009 and nearly tripled over the course of the year, Fitch said. The five states with the highest volume of prime jumbo loans outstanding are California, New York, Florida, Virginia and New Jersey.

From Fitch:

Fitch: New Year, No Improvement as U.S. Prime Jumbo RMBS Delinquencies Approach 10%

The five states with the highest volume of prime jumbo loans outstanding (California, New York, Florida, Virginia, and New Jersey) comprise approximately two-thirds of the loans in question. Prime jumbo RMBS 60+ days delinquencies for these states at January 2010 compared to December 2009, and their approximate share of the $381 billion market, are as follows:

–California: 11.3%, up from 10.8% (44% share of the market);

–New York: 6.1%, up from 5.8% (7% share);

–Florida: 16.6%, up from 16% (6% share);

–Virginia: 5.6%, up from 5.4% (5% share);

–New Jersey: 7.4%, up from 7.1% (4% share).

The article isn’t important, but the comments are, especially when they are from a mainstream NJ news paper. From the Star Ledger:

Aging Baby Boomers changing real estate

Comments:

nokelhead
Posted by nokelhead
February 05, 2010, 8:43AM

This about a stupid an article as I have ever seen. And they say that I am a nokelhead.
…
Posted by dagesq
February 05, 2010, 10:03AM

I agree nokel!
Real estate brokers will NEVER say publicly what they say privately:
the real estate market STINKS!

This is just another puff piece to fill space.
…
Posted by ellanj
February 05, 2010, 10:14PM

I agree as well. This person either totally delusional or a liar. I’m a 33 year old still renting and truth is we don’t need (or want) all those ‘luxury’ mcMansions sitting empty - when my husband and I decide to buy it certainly won’t be in a state with such overpriced and overtaxed housing.
…
Hal12b
Posted by Hal
February 06, 2010, 8:32PM

Real estate agents are all insane. They pump out all these bs articles trying to promote an immediate need for people to buy now. Sales may be up but what they are neglecting to say is that nobody is getting what they want. Home prices will continue to plummet for a while. The government will not make the same mistake or at least in our lifetime and give free money to people that can’t repay it. On top of the highest property taxes in the nation, nj home prices will drop for another2-3 years if not longer.

My my, how times have changed.

From HousingWire:

Treasury Changes Guidelines for Getting Borrowers into HAMP

The U.S. Treasury Department and the Department of Housing and Urban Development (HUD) changed guidelines on how servicers introduce borrowers into the Home Affordable Modification Program (HAMP) to go into effect June 1, 2010.
…
Servicers began ramping up efforts to gather more documents after the November HAMP numbers revealed a little more than 31,000 permanent modifications. Herb Allison, the assistant secretary for the Treasury said that at the program’s outset, the goal was to reach as many people as possible and obtain documentation during the trial period.
…
Effective for all trial period plans with effective dates on or after June 1, 2010, a servicer can only evaluate a borrower for HAMP after receiving an initial package that includes a request for modification and affidavit (RMA) form; the Internal Revenue Service (IRS) 4506T-EZ form, which gives servicers the ability to pull the borrower’s tax return; and two pay stubs from the borrower for proof of income.

From USA Today:

Want a loan modification? Bring documents

Homeowners applying for mortgage modifications will soon have to provide paperwork upfront showing that they qualify.

The new documentation process is aimed at getting homeowners more rapidly into permanent modifications with lower monthly payments.
…
To accept homeowners into the program, many lenders accepted borrowers by taking proof of income over the phone. Getting the documentation needed to get into a permanent modification then took time, lengthening the process.

Under the change, homeowners will provide the documentation upfront.

“Were there some struggles with documentation? Absolutely. Are we learning from those lessons? Absolutely,” says Phyllis Caldwell, who heads the Treasury’s Homeownership Preservation Office.
…
Wage earners will need:

•Two pay stubs.

•An electronic form that allows a servicer to pull up a tax return online.

•A request for modification that includes a hardship affidavit.

From the WSJ:

Paperwork Eased in Loan-Modification Program

The Obama administration is trying to simplify the paperwork for people seeking lower home-mortgage payments in an effort to avert more foreclosures.

The Treasury outlined new guidelines Thursday aimed at streamlining requirements for mortgage relief under the administration’s Home Affordable Modification Program launched a year ago.

The guidelines specify that borrowers must provide three items to loan servicers, the companies that collect mortgage payments: a form requesting a loan modification, authorization for the servicer to seek tax information from the Internal Revenue Service and evidence of income, such as two recent pay stubs. Previously, some servicers have asked borrowers to fax in copies of their tax returns. Borrowers sometimes couldn’t find the needed tax forms or complained that servicers repeatedly lost material faxed to them.

The previous documentation requirements were “somewhat overwhelming” for some borrowers, says Morgan McCarty, head of mortgage servicing at Regions Financial Corp., a banking company based in Birmingham, Ala.

From the Record:

Home prices fell 13% in Bergen and Passaic in 2009

Prices of single-family homes fell by an average 13 percent in Bergen and Passaic counties in 2009, according to data from two multiple listing services.

The average price of a single-family home sold in Bergen County in 2009 was about $553,000, down 13 percent from 2008. The median price — the point at which half the prices are above and half below — was $435,000, a 10.3 percent decline from a year earlier. The lower median value reflects the fact that more homes were sold at the more affordable end of the market.

In Passaic County, the average price in 2009 was $330,187, down 12.6 percent.

From the Star Ledger:

N.J. sees 29 percent, year-end jump in residential foreclosure filings

As the real estate market struggles to gain its footing back, the state’s number of residential foreclosure fillings jumped 29 percent at year’s end from 2008, according to data from the state judiciary.

Homeowners saw a record number of foreclosure filings in 2009. The housing crisis as well as the jobless rate — of 10.1 percent, which recently eclipsed the national rate in December — wreaked havoc on New Jerseyans who were forced into loan modifications, short sales, and even foreclosure.

Last year, banks filled 62,775 filings, up from 48, 698 in 2008.That’s a far cry from 2006, when only about 23,000 notices were filled.

The parts of the state with the widest margins of fillings increase were Atlantic and Bergen counties — 55 percent and 48 percent, respectively.

And the counties that saw the smallest jumps were Cumberland and Essex Counties — 11 percent and 12 percent increases, each.

From the Philly Inquirer:

Mortgage foreclosures way up in N.J.

New Jersey’s residential-mortgage foreclosure rate shot up 29 percent from 2008 to 2009, with a South Jersey county among the hardest hit, according to statistics released yesterday.

The number of commercial foreclosures, meanwhile, was up 68 percent, from 875 to 1,471.

The counties with the biggest increases in residential foreclosures were Atlantic, Bergen, and Sussex.
…
The foreclosure crisis will not get better any time soon, said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

The crisis started when lenders sold exotic mortgages to people who neither understood nor could afford them. Now the crisis is rapidly moving through the middle class.

“There were a lot of sharks in the cities getting people to buy existing housing at inflated prices, and people were in over their heads. You had all those scandalous mortgage products,” Hughes said.

And he said there is a “shadow inventory” of foreclosures. At President Obama’s request, many banks have held back on publicly filing foreclosure actions, but that won’t last.
…
Many residents find their mortgages are higher than their home values, putting them under water.

“Joining into the aftereffects of predatory lending, you now have middle-class households who have lost their jobs and stretched themselves too thin,” Hughes said.
…
The courts have been feeling the bump since at least 2007, when filings went up from 24,857 to 36,360.

Kevin Wolfe, chief of civil practice in the Administrative Office of the Courts, said there was a five- to six-month backlog in reviewing cases.

From the Star Ledger:

Lenders are hard-pressed to keep up with the demand of short sales

Thinking he’d found a cheap vacation home, Louis Pallante in April bid $300,000 for a fixer-upper in Toms River.

And then he waited to hear from the seller. And waited. After finally learning six months later that his offer had been rejected, he upped his bid to $315,000. But before he could close on the property, it went into foreclosure, only adding to his frustration.

“I can’t get a number or a name or anything from anyone,” said Pallante, 55, a reinsurance claims manager from Belleville.

Like many New Jersey residents hunting for discounted real estate, Pallante is learning firsthand there is nothing short about the short-sale process, in which lenders unload properties for less than they’re owed and borrowers get their debt wiped clean.

That’s because deals must be approved by mortgage holders as well as other creditors, and the sale of the property can be held up for as much as six months as stakeholders haggle over how much money they’re owed, according to real estate lawyers, analysts and agents.
…
Nationwide, the number of short sales increased by 22.4 percent to 30,766 in the third quarter of 2009, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

About one in 10 residential sales last year was a short sale, according to the National Association of Realtors.

Joe Zinman, chief executive of Aurora Financial Group in Marlton, said he used to deal with just one short sale at a time. Now, he might be handling as many as 15 at any given time.

“It has increased dramatically,” he said. “Understand that three, four years ago you had properties that were appreciating in value, at rather dramatic annual percentages, and you didn’t have a marketplace with this element of depreciation.”
…
Buyers, real estate agents and attorneys are playing a guessing game when it comes to figuring out how much a lender wants to unload a troubled property, said Barry Guberman, a Monmouth County real estate attorney.

“The biggest reason why short sales don’t get approved is that the (bank) negotiator will say that the price is below market value,” Guberman said. “They will almost never tell you what figure they’re looking for.”

There are no guarantees a sale will go through once the process has begun, said Sal Poliandro, a Saddle River-based real estate agent who specializes in short sales. Mortgage holders can foreclose before a short sale is completed, he said.

“The short-sale process and the foreclosure process are two trains running on parallel tracks,” he said. “The fact that you’re trying to do a short sale doesn’t stop foreclosure.”

From Bloomberg:

Housing Animal Spirits to Be Banished by Prime Foreclosures

Homeowners with the best credit are the next big risk for the U.S. housing market.

An increase in mortgage defaults among prime borrowers in 2009 is likely to accelerate this year, slowing the real estate recovery even as Americans become more optimistic about the economy, said Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.

“There will be continuing foreclosures, and not just subprime, it will be prime mortgages,” Shiller, a professor at Yale University, said in an interview. “This is creating a huge shadow inventory of homes that are still owned, but they’re going to be on the market in the next year or so.”

The number of prime mortgages overdue by at least 60 days more than doubled in the third quarter from a year earlier to 838,000, according to a Dec. 21 report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Unemployed homeowners struggling to pay their bills will default on their home loans and increase foreclosures, Shiller and Wellesley College’s Case said.
…
“Unemployment is not respecting income boundaries,” said Case in an interview. “It’s affecting rich people, poor people and middle-income people and they all have mortgages.” The U.S. may begin to see some signs of a housing recovery this year, he said.
…
“What makes the rising default rates on prime loans so insidious is these are not folks who took out some crazy new type of mortgage,” said Brad Hunter, chief economist at MetroStudy real estate research in West Palm Beach, Florida. “These are people who probably took out what would ordinarily be a responsible mortgage.”

From Reuters:

Fannie mortgage holdings sink, delinquencies leap

Fannie Mae’s gross mortgage portfolio shrank sharply in November while the delinquency rate on single-family loans it guarantees leaped in October, the government-controlled U.S. home funding company said on Monday.

The company said its mortgage investments fell at a 26.1 percent annual rate last month to $752.2 billion. Year-to-date, the portfolio has declined by an annual 4.9 percent from $787.3 billion at the end of last December.

Fannie Mae also reported an ongoing jump in the rate of late payments on single-family loans it guarantees, a problem that has eaten into its capital and forced borrowing from the U.S. Treasury.

In October, the most recent figures available, the conventional single-family serious delinquency rate rose 26 basis points to 4.98 percent. A year earlier, the rate was 1.89 percent.

The multifamily serious delinquency rate dipped 1 basis point to 0.61 percent but remained starkly higher than the 0.21 percent rate in in October 2008.

Loans that are three months or more past due or in the foreclosure process for single-family homes and those that are 60 days or more past due for multifamily homes are considered serious delinquencies.

From the WSJ:

Delinquencies Rise Further In Fannie Mae’s Portfolio In Oct

Fannie Mae (FNM) said delinquencies in its mortgage portfolio continue to rise as the mortgage financier reported its portfolio size shrunk.
…
Fannie said October serious delinquencies, or those at least 90 days behind, rose to 4.98% on single-family homes from 4.72% in September and 1.89% a year earlier. Fannie’s delinquencies have been higher than Freddie’s.

From Inside Jersey:

Trying for a comeback: New Jersey’s housing market in 2010

After putting the nation’s economy through the spin cycle, the real estate market this year could take a break.

Home prices look as if they’ve reached their lowest points, and people are starting to take deep breaths and buy again. It’s beneficial, too, that the federal government has helped keep mortgage rates down, in the 5 percent range, and Congress extended and expanded tax credits so they reach almost all potential buyers — not just first-timers anymore. Together, this means houses remain more affordable than they were for decades.

However, it’s tough to pay your mortgage without a job, and New Jersey’s labor market is key to a recovery in home prices.

“The worst is behind us, but the labor market is the big cloud going forward,” says Rutgers economist Joseph Seneca. If the economy does what’s being called a “double dip” or a “W,” more people could lose their jobs, and eventually their homes. But for now, most local markets have already stopped their price slide, and some markets are even coming back.

Overbuilt Hudson County will continue to struggle. Manhattan’s weak market is sapping demand from Hudson County, and deep South Jersey is hurt by being far from major job centers — Philadelphia and New York — and by Atlantic City’s losing streak.
…
Good news for home sellers is that while they don’t exactly have the upper hand, they may not feel as desperate to sell before prices fall any further. “It gets better from here,” Otteau says. “Some markets will be experiencing modest, gentle price increases.”
…
Still, sellers will be up against more competition from the “shadow market” — something that’s not quite as spooky as it sounds. This market is composed of sellers who had been waiting on the sidelines, because they figured it wasn’t worth putting their homes on the market when buyers were scarce. They’ll come out, adding to the supply.
…
BEST THING THAT COULD HAPPEN:
Home prices rise slowly. It could take years to get back to the highs of 2005 and 2006. Jeffrey Otteau, who tracks home prices, predicts no change in 2010 prices. However, New Jersey should see a 3 percent rise in 2011.

WORST THING THAT COULD HAPPEN:
The economy retreats, consumers and employers get scared, and more people lose their jobs. The government pulls back support, mortgage rates rise and sales fall. Foreclosures and fear send prices down again.

From the Courier News:

New Jersey real estate trends don’t mirror national patterns

As the real estate market seems to be stabilizing nationally and the number of foreclosed homes across the country fell for the fourth straight month, according to Realty Trac, closer examination of local markets shows that New Jersey is not following that trend.

While New Jersey’s statewide foreclosure rate is 0.03 percent — a third of the national rate — Realty Trac, a national company that tracks real estate statistics indicates that the number of people behind on their mortgage payments is not falling every month. In fact, New Jersey figures for July through October are significantly higher than numbers for fourth-quarter 2008 and first-quarter 2009.

HARD-HIT PROPERTIES: While there are foreclosures in every town, communities with the densest populations and oldest housing stock - the more urbanized areas - have been hit hardest. In Central Jersey, the number of homes receiving foreclosure notices is about three times higher in Middlesex County than the combined number in Somerset and Hunterdon counties. Middlesex County also has more urban centers and a higher population than Somerset and Hunterdon counties.
…
Several reasons exist for the higher foreclosure rates in Middlesex County:

First, the least affluent homeowners live in the most urbanized areas, where housing has traditionally been less expensive because the homes are older and built closer together.

“Those owners are the least likely to have savings if they lose their job,” Crivello said.

Second, when the economy weakened, the jobs that disappear first are the lower-paying service and retail jobs that these homeowners were likely to have, according to Jeffrey Otteau, chief executive officer of Otteau Valuation Group, an appraisal company in East Brunswick that also studies industry trends and market forces.

Third, many of these homeowners were given subprime loans or no-documentation loans, mortgages that carried significantly more risk.
…
ames Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick, pointed out that the key to stabilizing the housing market is a stable employment outlook — and New Jersey’s employment picture has been in decline for some time.

The state’s unemployment rate, at 9.7 percent, remains just below the national figure, but New Jersey will this decade with fewer jobs than when it started in 2000. The recession has only worsened the situation.

“Since the recession started in January 2008, we’ve lost 179,400 jobs,” Hughes said.

The prospects for job growth in New Jersey are not good, either. The state is losing high-paying jobs and replacing them with very low-paying jobs. In fact, from 2005 to 2008, household income has declined here, at a rate 100 times greater than the national average, according to Otteau.

“New Jersey is not attractive to business because of our high cost of living and of doing business, our high taxes and our restrictive practices,” Otteau said. Some of those practices relate to environmental, zoning and building regulations, among others.

From Bloomberg (Hat tip CR!):

Harvard’s Feldstein Says U.S. Economy Still Mired in Recession

The U.S. economy remains mired in a recession, prospects for next year are weak and home prices may resume declines, Harvard University economics professor Martin Feldstein said.

“The recession isn’t over,” Feldstein said today in an interview on Bloomberg Radio in New York. “It will be a while before we have enough information to know if the recession ended.”

Feldstein is a former president of the National Bureau of Economic Research and remains a member of the group’s Business Cycle Dating Committee, the panel charged with determining when recessions begin and end. His comments are at odds with those of the panel’s chairman, Robert Hall, who said early this month that the recession may have ended.
…
Regarding the residential property market, where the recession initially emerged, Feldstein said the Obama administration’s effort to revive the housing market is a failure and home prices will continue to decline.

“It was just not well enough designed,” Feldstein said. “They ended up failing.” That suggests the housing slump will “continue to push down house prices,” he said.

“We saw a little pause in home-price declines in the summer but I think that was because of the first-time home buyers program,” Feldstein said. “We’re not going to get that boost.”

From Bloomberg:

Luxury Homeowners in U.S. Use ‘Short Sales’ as Defaults Rise

Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

“The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9 million property marketed as a short sale because the price is less than the mortgage, leaving the bank with a loss. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”

Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier.
…
The Fed purchases haven’t affected the high end of the market because they exclude so-called jumbo loans. Mortgages above the $729,750 limit set by Congress for the nation’s highest-priced markets cost almost 1 percentage point more than conforming loans, according to Keith Gumbinger, vice president at HSH Associates, a mortgage-data company in Pompton Plains, New Jersey. That’s quadruple the historic spread.

“There is no refinance market for you if you are underwater and outside the Fannie and Freddie framework,” Gumbinger said. “High-end neighborhoods are all suffering from the same problems of diminished income at a time when there is little equity to work with.”
…
“The reason the low end stopped falling is because the government stepped in with affordable loans,” said Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm that runs the world’s largest bond fund. “There is no political will to bail out a million-dollar house.”

From the WSJ:

Confessions of an Underwater Homeowner

One in four Americans is underwater on a mortgage.

Count me among them.

My family’s modest, suburban New Jersey house is now worth about $30,000 less than our current balance. We never dreamed of walking away, but the idea of “strategically defaulting,” is something we had to at least consider. Many others have, too, as my colleague Mark Whitehouse reported in Thursday’s Journal (See American Dream 2: Default, Then Rent.)

We’re not home flippers or boom-era borrowers who opted for an exotic loan with no documentation. In buying our house, we believed we were making a life decision.

We started thinking about buying in 2004, when my wife and I found out that we were having a baby. We were thrilled. Shortly after that, we learned we were having multiple babies, we were equally thrilled–and terrified. We’re going to need a bigger place, we thought.

We probably could have held out a few years in our sizable apartment in Metuchen, N.J., a bedroom community about 35 miles outside of New York City. But we knew interest rates were hovering at historic lows. It was impossible, working at The Wall Street Journal, to not read those headlines every day. At the same time, people all around me were buying homes and refinancing their mortgages to capture these relatively inexpensive home loans. It was like a race, and everyone else was crossing the finish line while I was still putting on my sneakers.

From the WSJ:

American Dream 2: Default, Then Rent

Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.

But ever since they quit paying their mortgages and walked away from their homes, they’ve discovered that giving up on the American dream has its benefits.

Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes — one with a pool for the kids, the other with a golf-course view — for a fraction of their former monthly payments.

“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.

People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.

Thanks to a rare confluence of factors — mortgages that far exceed home values and bargain-basement rents — a growing number of families are concluding that the new American dream home is a rental.

Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.
…
The U.S home-ownership rate has charted its biggest decline in more than two decades, falling to 67.6% as of September from a peak of 69.2% in 2004. And more renters are on the way: Credit firm Experian and consulting firm Oliver Wyman forecast that “strategic defaults” by homeowners who can afford to pay are likely to exceed one million in 2009, more than four times 2007’s level.