No Easy Way to Buoy U.S. Homeowners Deep Underwater

by 10 Aug 2012

(Bloomberg) -- Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, stood in the beating sun amid the scrapyards and vacant lots of Cleveland’s East Side and noted that rising home prices have begun to reduce the number of families whose mortgages exceed the value of their homes.

The ranks of underwater borrowers nationwide dropped by 700,000 in the first quarter of the year, Donovan told a crowd gathered for a news conference last week in a parking lot outside a housing-counseling center. Still, he acknowledged, the problem remains severe in regions like greater Cleveland, where a third of homeowners have negative equity, according to data provider CoreLogic Inc.

“There is still a ways to go to make sure that hard-hit communities like Cleveland can fully recover, but we are on the right path,” Donovan said. “We have to do more.”

Even as home prices begin to stabilize in many areas of the U.S. and mortgage delinquencies drop to the lowest level in three years, the administration of President Barack Obama faces an uphill battle to find solutions for keeping the nation’s 11.4 million underwater homes from turning into foreclosures.

The situation is particularly difficult in Cleveland, which saw 14 straight years of rising foreclosures before leveling off in 2010. Home values have dropped by 30 percent on the East Side since 2009 alone, according to the county assessor.

Anthony Brancatelli, a Cleveland city councilman who represents some of the neighborhoods wiped out by home seizures, said he worries about the many “ghost” owners who have simply given up and disappeared.

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