Connecticut Sees Sharp Drop in Mortgages Deemed ‘Seriously Underwater’

As summer approaches, Connecticut has seen one of the largest declines in the nation in mortgages classified as “seriously underwater” — those for which homeowners owe 25% or more on their loans above the market value of their homes.

This can lead to a loss on any attempted sale and perhaps cause a mortgage lender to act more aggressively in any foreclosure scenario when a homeowner is having trouble keeping up with their payments.

Connecticut’s 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% from just 4% three months earlier, according to Attom Data Solutions. While Connecticut remains above the national average of 2.9%, the state had an opposite trend to neighboring New York and New Jersey, which both saw their underwater mortgage percentages rise in the second trimester.

Connecticut, however, missed the cut of the best states for “equity-rich” mortgages — those in which borrowers owe less than half the value of their home on their remaining loan balances. The United States hit a new high in July with 48.1% of mortgaged properties categorized by Attom as equity-rich.

An analyst at Atom linked the improved picture of underwater mortgages to rising home values ​​since the start of the COVID-19 pandemic.

“As home price appreciation appears to be slowing due to rising mortgage interest rates, it seems likely that homeowners will continue to rely on the record amount of equity they have available for the remainder of 2022,” said Rick Sharga, executive vice president. market intelligence at Attom, in written comments accompanying the Attom report.

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

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

“Buyer demand remained high, if not as high as recent quarters, with New York residents still seeking suburban housing in historic numbers,” the Stamford-based brokerage said in its July report. “Economic turmoil is playing a role in declining sales, but our unique proximity to New York nonetheless keeps our markets active.”

This sustained buyer interest provides a relief valve for any Connecticut homeowners who need to sell for financial 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 about one in every 775 mortgages according to Attom.

Under Connecticut law, lenders must engage in formal mediation with any borrower for the purpose of working out a payment plan as an alternative to foreclosure.

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