SANTA ANA, CA - CoreLogic, a leading provider of information, analytics and business services, today released negative equity data showing that 10.7 million, or 22.1 percent, of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2011. This is down slightly from 10.9 million properties, or 22.5 percent, in the second quarter. An additional 2.4 million borrowers had less than 5 percent equity, referred to as near-negative equity, in the third quarter. Together, negative equity and near-negative equity mortgages accounted for 27.1 percent of all residential properties with a mortgage nationwide in the third quarter, down from 27.5 in the previous quarter.
Negative equity, often referred to as “underwater” or “upside-down,” is the condition in which borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness. The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy,” said Mark Fleming, chief economist with CoreLogic.
Data Highlights
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Nevada has the highest negative equity percentage with 58 percent of all of its mortgaged properties underwater, followed by Arizona (47 percent), Florida (44 percent), Michigan (35 percent) and Georgia (30 percent). This is the first quarter that Georgia entered the top five, surpassing California which had been in the top five since tracking began in 2009.
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The top five states combined have an average negative equity ratio of 41.4 percent, while the remaining states have a combined average negative equity ratio of 17.6 percent.
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There are nearly 22 million borrowers, or 45 percent of all borrowers, that have mortgages with an 80 percent or more loan-to-value (LTV) ratio, and 69 percent of those mortgages have above-market interest rates of 5 percent or more. Conversely, only 54 percent of borrowers who have less than 80 percent LTV have above-market interest rates. While above-market interest rates make refinancing at today’s historically low rates a cost-effective step for qualified homeowners, it can be more difficult for borrowers with above-average LTV ratios to qualify for refinancing.
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Of the 10.7 million borrowers in negative equity, there are 6.3 million first liens without home equity loans that have an average mortgage balance of $222,000. They are underwater by an average of $52,000 which equates to an average LTV ratio of 131 percent. The negative equity share for the first lien-only borrowers was 18 percent, and 40 percent had an LTV of 80 percent or higher.
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The remaining 4.4 million negative equity borrowers hold first liens and home equity loans with an average mortgage balance of $309,000. These borrowers are underwater by an average of $84,000 and have an average LTV of 137 percent.
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The negative equity share for first lien borrowers with home equity loans is 38 percent, or twice the share for first lien-only borrowers. Over 60 percent of borrowers with home equity loans have combined LTVs of 80 percent or higher.
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Of the total $699 billion in aggregate negative equity, first liens without home equity loans account for $329 billion aggregate negative equity, while first liens with home equity loans account for $370 billion. CoreLogic estimates that of the $370 billion first liens with home equity loans, $190 billion is due to the first lien component.
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There are 8.6 million conventional loans in a negative equity position that have an average mortgage balance of $272,000 and are underwater by an average of $70,000.
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There are 1.5 million FHA loans in a negative equity position that have an average mortgage balance of $170,000 and are underwater by an average of $26,000.
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Given that bank portfolios account for 15 percent of all first lien mortgage loans, CoreLogic estimates that 1.6 million properties valued at $105 billion of aggregate negative equity are in bank portfolios¹.
Methodology:
CoreLogic data includes 48 million properties with a mortgage, which accounts for over 85 percent of all mortgages in the U.S.** CoreLogic used its public record data as the source of the mortgage debt outstanding (MDO) and it includes first mortgage liens and junior mortgage liens and is adjusted for amortization and home equity utilization in order to capture the true level of mortgage debt outstanding for each property. The current value was estimated by using the CoreLogic Automated Valuation Models (AVM) for residential properties. The data was filtered to include only properties valued between $30,000 and $30 million because AVM accuracy tends to quickly worsen outside of this value range.
The amount of equity for each property was determined by subtracting the property’s estimated current value from the mortgage debt outstanding. If the mortgage debt was greater than the estimated value, then the property is in a negative equity position. The data was created at the property level and aggregated to higher levels of geography.
** Only data for mortgaged residential properties that have an AVM value is presented. There are several states where the public record, AVM or mortgage coverage is thin. Although coverage is thin, these states account for fewer than 5 percent of the total population of the U.S.