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California cities rank high for overleveraged mortgages

A recent ranking of 2,500 U.S. cities has found California homeowners are the most overleveraged.

A recent ranking of more than 2,500 cities in the United States by personal finance website WalletHub has found that most of the country's most overleveraged mortgage debtors are located in California. The ranking showed that 37 cities rank in the 99th percentile in terms of the most overleveraged cities in the country. Of those 37 cities, 20 are located in California. The rankings raise concerns about growing mortgage debt levels, which are becoming a bigger issue as mortgage rates rise.

California's cities the most overleveraged

WalletHub's Home Overleverage Score for 2018 is based on two factors: the ratio between the median mortgage debt and the median income, and the ratio between the median mortgage debt and the median home value. Each of the more than 2,500 cities that were scored were then ranked according to percentile, with the 99th percentile representing those cities that are the most overleveraged overall.

The results showed that while Willis, Texas ranks as the most overleveraged city in the U.S., California has the most cities in the 99th percentile. Out of the 37 U.S. cities in the 99th percentile, 20 are located in the Golden State. The most overleveraged California cities are Santa Ana, which has a mortgage debt-to-income ratio of 976 percent, followed by Watsonville, Bell Gardens, and Vista. Chula Vista ranked in the 98th percentile, while almost every city in San Diego County ranked in the 90th percentile or higher (the only exceptions being Carlsbad, Encinitas, Poway, and Santee).

Borrowers expect to be squeezed

The fact that so many people, especially in California, are overleveraged on their mortgages is troubling given that interest rates on mortgages are rising. As ABC News reports, the average interest rate on a 30-year fixed-rate mortgage is, as of April 19, 2018, 4.47 percent. That is up from 4.42 percent two weeks beforehand and from 3.97 percent a year ago. Those rising rates put a squeeze on mortgage borrowers, many of whom are already overleveraged.

Furthermore, the rising interest rates make buying a home more difficult for a number of reasons. Not only are mortgages becoming more expensive, but the higher interest rates mean that many would-be sellers are expected to hold off on selling their homes in order to avoid the expensive mortgages that would come with buying a new home. As a result, the supply of homes for sale is expected to be unable to keep up with demand, which will further drive prices upwards, in turn putting more pressure on those who do buy.

Personal bankruptcy law

For those who are struggling with debt, including mortgage debt, help may come from considering bankruptcy. While bankruptcy is not a one-size-fits-all solution, for many people it could offer the financial relief they need. A bankruptcy attorney can help those who are struggling with debt understand what their options are and if bankruptcy is a viable way forward.

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