Everybody knows that today’s homeowners handle their mortgage debts differently from earlier generations, right? They gladly sign up for monster-sized mortgages, skimp on down payments, and have an unhealthy appetite for financing techniques that lower monthly payments by deferring reality interest-only loans, option ARMs and negative amortization loans.
When was the last time you heard about a mortgage-burning party? How antique. How last century. Do homeowners actually pay down their mortgages to zero anymore, or do they simply refinance every few years until it is time to sell or die?
But hold off a minute with all the stereotypes: New consumer research suggests that some of these images are just plain wrong. A nationally representative statistical sample of 1,347 American homeowners polled by Princeton, N.J.-based Opinion Research Corp. between Sept. 22 and 26 found that while mortgage-burning parties may be out, the overwhelming majority of homeowners have plans to pay off their mortgages within specific timelines, and that a surprising chunk of them 25 percent already have.
The survey was commissioned by Ditech.com, the General Motors online mortgage subsidiary, and was part of an even larger statistical sample of consumers that included non-owners.
What jumps out of the survey is the relatively sober approach most owners are taking to managing their mortgage debts. For example, 38 percent of them say they have already paid off more than 50 percent of their original home financing, including first and second mortgages and equity lines. In answer to another question, 28 percent say they expect to be fully paid off sometime during the coming 10 years.
Only 4 percent of all owners say they have no plan or expectations about paying off their mortgage they just haven’t thought about it and just 6 percent expect to extinguish their debts solely by selling the property.
Debt levels in the survey were nowhere near as high as stereotypes might suggest. Just 12 percent reported first and second mortgage totals in excess of $150,000; 19 percent have $75,000 to $150,000 in unpaid home loan debt; and 30 percent have less than $75,000 outstanding. Even in California, the survey found that just 30 percent of owners are carrying $150,000 or more in mortgage debt.
Those numbers don’t resemble the irresponsible credit junkies portrayed by some critics and housing-bust doomsayers. Yet the findings don’t surprise analysts who keep a close eye on household credit patterns, delinquency rates, foreclosures and debt management.
Allen Fishbein, director of housing and credit policy for the Consumer Federation of America, says the Ditech.com survey findings “are consistent” with research his group has conducted.
“I think that the notion that consumers think of their home as just a piggy bank is really oversold,” said Fishbein in an interview. “People actually do everything they can to stay current on their loans and they do plan to pay them off. There are a lot more old-fashioned values out there in the market than a lot of people assume.”
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Ken Harney is a real estate columnist for the Washington Post.