Half of Mortgage Borrowers Under 40 are Underwater

     Rising home prices have helped nearly a million homeowners emerge from being underwater from their mortgages. But the younger homeowners are still struggling to stay afloat. The percentage of of borrowers who owed more on their homes than what they were worth fell to nearly 31%, which is down a few tenths of  percentage points from the previous months. Of the 15 million owners who were underwater, a significantly large number are under the age of 40.

     Nearly 48% of all underwater homeowners are under the age of 40, which is twice the rate of borrowers that are older. This creates a gridlock which has the potential to hinder the market's recovery.

     You hear about tight inventory in many markets, and it's clear where it is coming from. Having a negative equity is trapping young people in their homes, which prevents them from selling. Most of these homes are the starter-first-time buyer homes. Underwater homes that wish they could be sold have difficult decisions to make. They will either have to pay the mortgage in full at closing (which needs a bundle of cash on hand) or go through a short sale.

      Going through with a short sale however means getting the bank to forgive the difference that you still owe. If the bank won't approve of the short sale, then the sale cannot be completed. even if the sale is completed the seller takes a large dent on their credit score, which is where reluctance kicks in.

     Still many homeowners do not want to absorb the loss, They hang onto their homes hoping the prices will rebound and they can sell above water. This is such that case in states like Florida and California.

     Here's the impact of the underwater generation: This could have horrible ramifications for the economy and borrowers under 40. Many young homeowners bought their homes at the peak of the market, and now they've reached middle age with nothing to show for their investment.

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