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1 in 5 mortgages drowning

9.3 million U.S. residential properties are underwater

underwater homeowner
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RealtyTrac released its U.S. Home Equity & Underwater Report for December 2013, which shows that 9.3 million U.S. residential properties were deeply underwater, or about 1 in 5 of every property with a mortgage.

"Deeply underwater" is defined as worth at least 25% less than the combined loans secured by the property.

That was down from 10.7 million residential properties deeply underwater in September 2013, representing 23% of all properties with a mortgage, and down from 10.9 million properties deeply underwater in January 2013, representing 26% of all properties with a mortgage.

The high watermark for being deeply underwater came in May 2012, when 12.8 million U.S. residential properties were deeply underwater, representing 29% of all properties with a mortgage.

"During the housing downturn we saw a downward spiral of falling home prices resulting in rising negative equity, which in turn put millions of homeowners at higher risk for foreclosure when they encountered a trigger event such as job loss," said Daren Blomquist, vice president at RealtyTrac. "Now we are seeing the reverse trend: rising home prices resulting in falling negative equity, which in turn is giving millions of homeowners a lifeline to avoid foreclosure when they encounter a trigger event. On the other end of the spectrum, the percentage of equity-rich homeowners is nearing a tipping point that should result in a larger inventory of homes listed for sale and give the overall economy a nice shot in the arm in 2014."

“However, there are still millions of homeowners who are in such a deep equity hole that it will take years for them to regain their equity," Blomquist added. "The longer these homeowners remain in a negative equity position without relief in the form of a principal loan balance reduction, the more likely that foreclosure will become the path of least resistance for them."

The universe of equity-rich properties — with at least 50% equity — grew during the fourth quarter as well, from 7.4 million representing 16% of all residential properties with a mortgage in September, to 9.1 million representing 18% of all residential properties with a mortgage in December.

“With available home inventory and interest rates at all-time lows, we experienced an increased rate of appreciation throughout the Ohio housing market during the fourth quarter of 2013," said Michael Mahon, executive vice president/broker at HER Realtors, covering the Cincinnati, Columbus and Dayton markets in Ohio.  

RealtyTrac’s report also found the following:

  • States with the highest percentage of residential properties deeply underwater in December were Nevada (38%) Florida (34%) Illinois (32%) Michigan (31%) Missouri (28%) and Ohio (28%).
     
  • Major metropolitan statistical areas with the highest percentage of residential properties deeply underwater in December were Las Vegas (41%) Orlando, Fla., (36%) Detroit (35%) Tampa, Fla., (35%) Miami (33%) and Chicago (33%).
     
  • States with the highest percentage of equity-rich residential properties were Hawaii (36%) New York (33%) California (26%) Montana (24%) and Maine (24%. The District of Columbia also posted an equity-rich rate of 24%.
     
  • Major metropolitan statistical areas with the highest percentage of equity-rich residential properties were San Jose, Calif., (37%) San Francisco (33%) Pittsburgh (30%) Buffalo, N.Y. (30%) and Los Angeles (29%).
     
  • States with the highest percentage of deeply underwater residential properties in the foreclosure process included Nevada (65%) Florida (61%) Illinois (61%) Michigan (55%) and Ohio (48%).
     
  • Major metro areas with the highest percentage of deeply underwater residential properties in the foreclosure process were Las Vegas (66%) Tampa, Fla. (63%) Chicago (62%) Orlando (61%) and Detroit (61%).
     
  • States with the highest percentage of foreclosure properties with some equity included Oklahoma (62%) Colorado (54%) New York (52%) Texas (51% and North Carolina (45%).

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