By Patrick Rucker
NEW YORK (Reuters) - Millions of U.S. homeowners who bought homes with sinking value are set to abandon the properties and cut their losses on bad investments, a leading housing market economist said on Tuesday.
"We may face something unprecedented ... that is a situation where millions of homeowners are going to walk out of their homes in the next couple of years," said Nouriel Roubini, professor of economics and international business at New York University's Stern School of Business and head of Roubini Global Economics.
Somewhere between 10 million and 15 million homeowners might soon find that their homes are worth less than the amount of their loans, Roubini said at the Reuters Housing Summit in New York.
Such borrowers would be caught in a trap of "negative equity," in which they are paying off loans that no longer represent the true value of their properties.
"When the value of your home is below the value of your mortgage, you have a huge incentive essentially to walk away," he said.
Home prices across the nation are set to sink in value by 10 percent this year on top of the losses already recorded, he predicted.
If prices indeed continued to drop, Roubini said, mortgage servicers and lenders would face pressure to write down a home loan to the lower value and take big losses on many loans.
The other option would be for servicers and lenders to push delinquent borrowers into foreclosure -- but that would be costly for the mortgage industry, which would then be stuck with homes -- very illiquid assets in today's market. Continued...
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