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Paul Kiesel
Paul Kiesel
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Housing Crisis has Los Angeles Upside-Down

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There is good news and bad news coming from Zillow.com’s recent home value statistics for the Los Angeles area.

The good news: If you purchased your current home in 2003, you’re very likely not to have negative equity, or be upside-down in your mortgage, as only 1% of homes purchased that year have negative equity.

The bad news: There’s a bell curve trend in Los Angeles of homes having negative equity, peaking in 2006.

2004: Almost 25% of homes purchased this year have negative equity.

2005: Just under 60% of homes purchased have negative equity.

2006: 71% of homes purchased have negative equity! (Option-ARM loans spiked this year, as well — these loans helped usher in many of the 71% of upside-down mortgages, as teaser rate payment loans, unfortunately, amortized negatively, even though most lenders failed to disclose this information: TILA violations.)

2007: 56% of homes purchased have negative equity.

2008: And as of the first two quarters of this year, about 15% of homes in the L.A. area have negative equity. Obviously, if that trend continues, lenders are showing us that through eliminating teaser rate payment loans and requiring a down payment of at least 10%, it helps mitigate the amount of homeowners that are upside down in their loans. However, lenders had no other choice but to be more responsible in their mortgage lending practices (i.e. see all of the recent bank failures from Bear Stearns to IndyMac).

As government officials, like Treasury Secretary Paulson, have been saying for the past two weeks, the housing crisis is barely half way over, and the 40% of homes purchased over the last five years in the Los Angeles area that have negative equity, a number that continues to rise, proves why we won’t see relief from the housing crisis until next year or until home prices stabilize and start inching their way back up.