Negative and near-equity numbers in the U.S. are diminishing steadily according to data released today by CoreLogic but still affects more than a quarter of homeowners with a mortgage.  The number of underwater homeowners - those who, because of a decline in home value, an increase in debt, or both,  owe more on their mortgage than their homes are worth - dropped by about 100,000 in the third quarter of 2012.  This brings the total decline in the first nine months of 2012 to 1.4 million, leaving 10.7 million homeowners with negative equity at the end of the period or 22 percent of all homeowners with a mortgage. 

An additional 2.3 million borrowers were near-negative in equity with less than 5 percent in their homes. The combination of these two categories means that 26.8 percent of homeowners with a mortgage have little or no equity compared to 27 percent at the end of the second quarter of 2012.  The dollar value of underwater homes was estimated at $658 billion at the end of the third quarter compared to $689 billion at the end of the second. 

The bulk of negative equity is concentrated in the low end of the housing market. For example, for low- to mid-value homes (less than $200,000), the negative equity share is 28.7 percent, almost twice the 14.6 percent for borrowers with home values greater than $200,000.

"Through the third quarter, the number of underwater borrowers declined significantly," said Mark Fleming, chief economist for CoreLogic. "The substantive gain in house prices made in 2012, partly due to tight inventory caused by negative equity's lock-out effect, has paradoxically alleviated some of the pain."

"There has been steady progress relative to reducing negative equity and its effects in 2012, but with nearly one quarter of borrowers still underwater, we have a long way to go," said Anand Nallathambi, president and CEO of CoreLogic. "As we look ahead into 2013, we expect to continue to see more borrowers escape the negative equity trap, which will be a strong positive for the housing market specifically and the broader economy generally."

As of Q3 2012, there were 1.8 million borrowers who were only 5 percent underwater and if home prices continue increasing over the next year they could return to a positive equity position.

The highest percentage of mortgaged properties with negative equity was in Nevada at 56.9 percent, followed by Florida (42.1 percent), Arizona (38.6 percent), Georgia (35.6 percent) and Michigan (32 percent). These top five states combined account for 34 percent of the total amount of negative equity in the U.S.

Homeowners with only first liens accounted to $323 billion of the aggregate negative equity while first liens with home equity loans accounted for $334 billion.  Underwater first liens without home equity loans are held by 6.6 million borrowers with an average mortgage balance of $214,000.  They are underwater by an average of $49,000.

There are 4.1 million negative equity borrowers who have both first and second mortgages.  The average mortgage balance for this group is $214,000 and they are underwater by $82,000.

At the end of the third quarter there were 17.1 million borrowers who, based on their loan to value ratios, could have qualified for the Home Affordable Refinance Program (HARP) under the original requirements that capped LTVs at 125 percent.  Under the new rules with no LTV cap another 4.6 million borrowers could be eligible for the program.