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.
References in periodicals archive ?
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.
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.
Full browser ?