Underwater Loan

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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Hence, borrowers need not be irrational or excessively optimistic when they continue to make payments on an underwater loan.
The best way to modify an underwater loan is to reduce the principal balance, lowering the monthly payment and restoring equity.
Needless to say, not many borrowers will be willing to make put this amount of additional equity into an underwater loan.
The concentration of underwater loan problems in five states was clearly evident in the third-quarter data.
To what extent the outstanding principal on an underwater loan should be written down is another topic of discussion, although the consensus seems to be to no more than 115 percent CLTV.
The additional requirements, which apply to this Fannie Mae non-performing loan sale, encourage sustainable modifications that have the potential to give more borrowers the opportunity for home retention by requiring evaluation of borrowers with underwater loans for modifications that may include principal and/or arrearage forgiveness; forbidding walking away from vacant homes; and establishing more specific proprietary loan modification standards.
The goal of the Community Restoration Program is to preserve affordable homeownership and rental opportunities in neighborhoods that continue to have high rates of foreclosure and underwater loans.
He sees Watt as being open to providing relief in certain targeted housing markets where there are still a lot of underwater loans.
A number of localities have publicly considered adopting this plan to condemn underwater loans ("the Plan"), or some variation of it, since the firm first pitched it to counties and municipalities in California's Inland Empire.
Finally, government should confront the real-estate debt crisis head on and take steps to resolve the underwater loans that are burdening the balance sheets of small banks and businesses alike.
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.
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