Connecticut sees sharp drop of mortgages considered ‘seriously underwater’

Heading into the summer, Connecticut had one of the sharpest drops in the nation of mortgages classified as “seriously underwater” – those for which homeowners owe 25 percent or more on their loans above the market value of their houses.

That can result in a loss in any attempted sale, and possibly spur a mortgage lender to move more aggressively in any foreclosure scenario when a homeowner is having difficulties keeping up with payments.

The Connecticut real estate market remains hot by historic standards, given high prices and the speed at which homes are selling. But the Federal Reserve is raising interest rates sharply this year, making mortgages more expensive for buyers, and for those facing rate increases under adjustable-rate mortgages.

In the second quarter, the percentage of existing Connecticut homeowners with seriously underwater mortgages fell to 3.3 percent from 4 percent only three months earlier, according to Attom Data Solutions. While Connecticut remains above the national average of 2.9 percent, the state was trending opposite neighboring New York and New Jersey which both saw their percentages of underwater mortgages creep upward in the second quarter.

Connecticut missed the cut of the top states for “equity-rich” mortgages, however – those in which borrowers owe less than half the value of their homes on their remaining loan balances. The US hit a new high in July with 48.1 percent of mortgaged properties classified by Attom as equity-rich.

An Attom analyst pegged the improved picture for underwater mortgages to escalating home values ​​since the start of the COVID-19 pandemic.

“While home price appreciation appears to be slowing down due to higher interest rates on mortgage loans, it seems likely that homeowners will continue to build on the record amount of equity they have for the rest of 2022,” stated Rick Sharga, executive vice president of market intelligence at Attom, in written comments accompany the Attom report.

On Thursday, the mortgage loan guarantor Freddie Mac reported a second straight week of the average US mortgage rate, dropping it below 5 percent for the first time since April.

While Connecticut home sales were down 16 percent in the first six months of this year, that is the result of an equivalent decline in properties listed for sale. William Pitt Sotheby’s International Realty reported this week that new listings were down between 18 percent and 25 percent in July across five Connecticut counties it tracks, with Litchfield County and New Haven County at the two extremes.

“Buyer demand remained elevated, if not as high as recent quarters, with New York City residents still seeking suburban housing in historic numbers,” the Stamford-based brokerage stated in its July report. “Economic turbulence is playing a role in the reduced sales, but our unique proximity to New York City is nevertheless keeping our markets active.”

That sustained buyer interest is providing a relief valve for any Connecticut homeowners needing to sell for financial reasons or other life considerations. Connecticut had the 11th highest rate of foreclosure filings in the nation in the first six months of this year at roughly one for every 775 mortgages according to Attom.

Under Connecticut law, lenders must engage in formal mediation with any borrowers in an attempt to work out a payment plan as an alternative to foreclosure.

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