Homes with Negative Equity Up in US

CoreLogic reports the total mortgage debt outstanding for U.S. homeowners increased from $2.7 trillion to $2.8 trillion in the fourth quarter of 2011, with 27.8% of all U.S. …

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CoreLogic reports the total mortgage debt outstanding for U.S. homeowners increased from $2.7 trillion to $2.8 trillion in the fourth quarter of 2011, with 27.8% of all U.S. homeowners in negative equity or near-negative equity (defines as having less than 5% equity in the home). Homeowners with negative equity are often described as being “underwater” on their home loans, meaning they owe more than their homes are worth. States with large percentages of underwater borrowers include Nevada (61%), Arizona (48%) and Florida (44%). The majority of these homeowners are focused in the low end of the market, and many are struggling with multiple liens on their homes. For more on this continue reading the following article from Property Wire.

Some 11.1 million, or 22.8%, of all residential properties in the United States with a mortgage were in negative equity at the end of the fourth quarter of 2011, according to the latest data from analysts CoreLogic.

This is up from 10.7 million properties, or 22.1%, in the third quarter of 2011. An additional 2.5 million borrowers had less than 5% equity, referred to as near negative equity, in the fourth quarter.
 
Together, negative equity and near-negative equity mortgages accounted for 27.8% of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter, the data also shows.

Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.

Negative equity, often referred to as underwater or upside down, means that 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.

‘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 the third quarter of 2009, which is when we began reporting negative equity using this methodology,’ said Mark Fleming, chief economist with CoreLogic.
 
‘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,’ he warned.

Nevada had the highest negative equity percentage with 61% of all of its mortgaged properties underwater, followed by Arizona at 48%, Florida at 44%, Michigan at 35%, and Georgia at 33%.

This is the second consecutive quarter that Georgia was in the top five, surpassing California at 29% which previously had been in the top five since tracking began in 2009. The top five states combined have an average negative equity share of 44.3%, while the remaining states have a combined average negative equity share of 15.3%.

Of the 11.1 million upside down borrowers, there are 6.7 million first liens without home equity loans. This group of borrowers has an average mortgage balance of $219,000 and is underwater by an average of $51,000 or an LTV ratio of 130%. For all first lien only borrowers negative equity share was 18%, while 41% of all first lien only borrowers had 80% LTV or higher.

The remaining 4.4 million upside down borrowers had both first and second liens. Their average mortgage balance was $306,000 and they were upside down by an average of $84,000 or a combined LTV of 138%. The negative equity share for all first lien borrowers with home equity loans was 39%, more than twice the share for all first lien only borrowers. Over 60% of borrowers with first liens and home equity loans had combined LTVs of 80% or higher.

The low end of the market is where the bulk of the negative equity is concentrated. For example, for low to mid value homes valued at less than $200,000, the negative equity share is 54% for borrowers with home equity loans, over twice the 26% for borrowers without home equity loans.

Of the total $717 billion in aggregate negative equity, first liens without home equity loans accounted for $342 billion aggregate negative equity, while first liens with home equity loans accounted for $375 billion. Over $230 billion in negative equity is from homes valued at $200,000 or less.

There were 8.8 million negative equity conventional loans with an average balance of $269,000 that are underwater by an average of $70,000. There were 1.7 million underwater FHA loans with an average balance of $169,000 that are underwater by an average of $26,000.

This article was republished with permission from Property Wire.

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