Home Values Seen Declining

During the refinance boom between 2001 and 2003, a majority of households used cash equity from their homes to cover living expenses and to pay down credit card debt, which eroded their home's cash value, according to a new report from Demos: A Network for Ideas & Action, a national nonpartisan public policy organization based in New York.Over the last few years, appraisal fraud has helped to fuel home prices, leaving many borrowers owing much more than the true value of their home, the report said. If home prices begin to go up, author Javier Silva believes that homeowners who reduced their homes' equity during the boom could be hurt. "A homeowner could end up owning more on their mortgage than the house is worth," said Mr. Silva. As the Federal Reserve continues to raise interest rates, a family with an adjustable rate mortgage will see a significant increase in their monthly payments. The combination of higher payments coupled with the rising costs of basic living expenses represents a growing financial threat, the report said. Demos is pushing for legislation at both the state and federal level to protect borrowers. They are urging Congress to ensure that brokers are prohibited from "coercing or intimidating" appraisers in order to receive a desired property appraisal value.