Many homeowners in on the both coasts have gotten in over their heads when it comes to their mortgages.
But San Luis Obispo, Calif., has the most over-leveraged mortgage borrowers in the country, according to a new study released Wednesday by personal-finance site WalletHub. To determine how over-leveraged the city’s debtors were, WalletHub compared the median mortgage balance among residents with the median home value and median income. In total, WalletHub analyzed the leverage situation across more than 2.500 cities nationwide.
In San Luis Obispo, the median mortgage debt amount was roughly $333,641, compared with a median house value of $546,200. Additionally, the mortgage debt-to-income ratio in the city on California’s Central Coast is a staggering 2,014%, according to WalletHub, with a median income of just $16,565. Other cities with the most over-leveraged borrowers include Williamsburg, Va.; Brooksville, Fla.; Bay Point, Calif.; and Willis, Texas.
Many of the cities in the 99th percentile when it comes to being over-leveraged are located in California, including Santa Cruz and Hollister. Florida, Pennsylvania, Virginia, Hawaii and Texas also had multiple cities fall in this rank. Among the cities with the least leveraged mortgage borrowers were Decatur, Ga., Bronxville, N.Y., and Naples, Fla.
While being over-leveraged is a problem for many homeowners, it’s not an unfixable situation. Following the financial crisis, many mortgage companies and banks introduced modification programs to help homeowners who run into such a situation, said Vaneesha Boney Dutra, an associate professor of finance at the University Of Denver. “It is very important that the homebuyer try to make contact with their bank as soon as they know they are in financial distress so that there is more time to work out a potential solution,” she said.
Over-leveraged borrowers may become more common. Recent data from the Mortgage Bankers Association showed that Americans are taking out the largest home loans on record. Luckily for homebuyers, interest rates have recently decreased to the lowest level of the year, offsetting the otherwise high cost of purchase a home. And buyers may be able to find a good deal in certain parts of the country. Real-estate website Trulia calls the Midwest, along with the South, “the Bargain Belt,” since home prices have increased more slowly there. Given that wages are stagnant for many Americans, cheaper homes clearly can make the American Dream easier to come by.
More from MarketWatch