Underwater Loan

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Underwater Loan

A loan in which one owes more than the value of the asset the loan was intended to buy. For example, if one borrows $15,000 to buy a car, but the car depreciates rapidly to a value of only $12,000, the borrower has an underwater loan. See also: Underwater.
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For the 365,000 delinquent underwater loans backed by Fannie Mae and Freddie Mac alone, nearly $18 billion in write-downs would be called for.
He sees Watt as being open to providing relief in certain targeted housing markets where there are still a lot of underwater loans.
Of all the underwater loans of various asset classes in a lender's portfolio, the loan-type which most likely presents the greatest value recovery challenge to a lender is the class "B" regional mall, located in both primary and secondary markets.
Unlike most modifications, those actions erase excess debt and reset home values, solving the problem of underwater loans that are a top cause of defaults.
Deutsche Bank predicts that the number of underwater loans in the New York metro area will jump from its current 11 percent to 77 percent by 2011.
The preliminary ratings reflect the credit enhancement provided by unrated subordinate certificates, a reserve fund, and excess spread; the expected good performance from a high-quality prime pool of loans, of which 88% are for new vehicles; a yield supplement account available to increase the yield on underwater loans with interest rates lower than the combined costs of debt and servicing; and a sound legal structure.
It would allow other local governments to join the city to expand the numbers of underwater loans that could be acquired, share strategies and attorneys in litigation, and prepare resolutions of necessity for any eminent-domain action.
De Marco, the current overseer of millions of home loans guaranteed by Freddie Mac and Fannie Mae, has refused to reduce principal amounts on underwater loans despite numerous studies finding far greater public economic benefits in principal reduction than in foreclosure.
The Federal Reserve's strategy allowing banks to restructure underwater loans has slowed the rate of foreclosures to a pace that is not overwhelming the market and, in fact, is frustrating some investors who had hoped for a greater selection of bargain-priced properties.
Of course this was all very predictable," says Calabria, who did, in fact, predict FHA would end up with lots of underwater loans.
We know that resetting underwater loans to real value is the only thing that will work to end the foreclosure crisis and get the economy going again.
Other hard-hit housing markets with high shares of underwater loans were: Arizona (50 percent); Florida (46 percent); Michigan (36 percent); and California (31 percent).
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