With home prices nationwide continuing to decline it is not surprising that the number of homeowners who are underwater (i.e. owe more on their mortgages than the value of their home) continues to increase. CoreLogic released Quarter Four data this morning showing that 11.1 million or 22.8 percent of all U.S. homes with a mortgage were in a negative equity position compared to 10.7 million in the third quarter and an additional 2.5 million borrowers were in a near-negative position. Together these negative and near-negative homeowners own 27.8 percent of all mortgaged residential properties compared to a total of 27.1 percent in Quarter Three. The total mortgage debt outstanding these properties rose from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.
Not all negative equity is the result of declining prices. Some mortgages are underwater because of negative amortization of their mortgages, non-payment, or restructuring of debt to avoid foreclosure. The level of negative equity is a concern because it is at the root of many mortgage defaults.
CoreLogic said that, based solely on loan-to-value ratios (LTV), it estimated that 18 million borrowers might have been eligible for refinancing under the guidelines of the original Home Affordable Refinance Program (HARP). Under LTV guidelines for the newly expanded HARP which removed the earlier 125 percent LTV cap, over 22 million borrowers may now be eligible to refinance.
Borrowers with multiple liens on their homes are more likely to be in a negative position. Of the 11.1 million underwater borrowers, 6.7 million have only a first mortgage lien. This group has an average mortgage balance of $219,000 and negative equity of $51,000 or a LTV of 130 percent. These underwater borrowers represent only 18 percent of all borrowers with only a first lien on their home. Forty-one percent of these borrowers had an LTV in the fourth quarter of 80 percent or higher.
Among all borrowers with both a first and second lien on their home 4.4 million or 39 percent were in a negative position. Their average mortgage balance was $306,000 and the average LTV was 138 percent, i.e. negative equity of $84,000. Over 60 percent of borrowers with two liens had combined LTVs of 80 percent or higher.
The highest percentage of underwater homes is in Nevada where 61 percent of mortgaged homes have negative equity followed by Arizona (48 percent), Florida (44 percent) Michigan (35 percent) and Georgia (33 percent.) Not surprisingly these states have all ranked high in the incidence of foreclosures.
Mark Fleming, CoreLogic's chief economist said, "Due to the seasonal declines in home prices and slowing foreclosure pipeline which is depressing home prices, the negative equity share rose in late 2011. The negative equity share is back to the same level as Q3 2009, which is when we began reporting negative equity using this methodology. The high level of negative equity and the inability to pay is the 'double trigger' of default, and the reason we have such a significant foreclosure pipeline. While the economic recovery will reduce the propensity of the inability to pay trigger, negative equity will take an extended period of time to improve, and if there is a hiccup in the economic recovery, it could mean a rise in foreclosures."
CoreLogic's database includes 48 million mortgaged properties, approximately 85 percent of the U.S. total. Information on liens was gathered from public records and current home values were estimated using CoreLogic's Automated Valuation Models for residential properties.
