Deutsche Bank Estimates 48% of U.S Homeowners Underwater By 2011, Report 18 of 18

Conclusion

If you are underwater, there is a very high chance that you will default on your mortgage than those who still have ample equity. If you are severely underwater, you are more at risk of defaulting.

In reference to the chart, the last housing bust that started in 1989, home prices in Massachusetts declined about 16% through 1992. About 7 % of borrowers who were underwater defaulted on their mortgages. 7% is not a bad number but based on 4 reasons, Karen Weaver of Deutsche Bank believes it will be worse this time around.

· The house price decline experienced today is much worse impacting more borrowers to be severely underwater. By 1992, Massachusetts home prices have fallen 16% from 1989. Today, home prices have fallen off a national average of 33% from its peak.

· Massachusetts is considered one of the top regions with superior borrowers consisting of mainly ‘prime’ or conforming mortgage borrowers.

· Massachusetts suggests that it has a large percentage of fixed-rate loans.

· Massachusetts unemployment peaked at 9.1% in the last major housing bust of 1989 - 1992. Today, we have surpassed the national unemployment rate of 9.4%.

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Source: Deutsche Bank

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