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11.3m Homeowners Now Underwater: First American

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11.3m homeowners now owe more on their mortgages than the value of their home at the end of Q409, with the Sand States taking four of the top five negative equity, or underwater, markets according to research released by First American CoreLogic. The number of so-called “underwater” borrowers represents 24% of all residential properties with mortgages in the US, First American CoreLogic said, an increase from 10.7m, or 23% of all residential mortgage borrowers at the end of Q309. “Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.” Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both and once it reaches a certain point, is a trigger to strategic default, an issue HousingWire explored in the current edition of its monthly magazine. Nevada, at 70%, was the state with the highest percentage of negative equity borrowers, followed by Arizona (51%), Florida (48%), Michigan (39%) and California (35%). Among the top five states, underwater mortgages accounted for 42% of all loans, while underwater mortgages only took a 15% share in the remaining 45 states. First American CoreLogic said 620,000 additional borrowers joined the underwater ranks, with the largest percentage increases occurring in Nevada, Georgia and Arizona. California had the smallest increase, but there are now 35.1% of California borrowers underwater. Last summer, Deutsche Bank (DB) analyst Karen Weaver wrote continued declines in home values will increase the number of US mortgagors with negative equity to 25m in Q111, which she projects will represent 48% of all US borrowers. In terms of value, the nation’s borrowers are a combined $801bn underwater, up $55bn from $746bn in Q309. Once negative equity exceeds 25%, or the mortgage balance is $70,000 higher than the current property values, owners begin to default with the same propensity as investors, First American CoreLogic said. The average underwater borrower had $70,700 in negative equity, up from $69,700 in Q309. The segment of borrowers 25% or more underwater accounts for more than $660bn in negative equity. On the opposite end of the spectrum, there are more than 23m, or 49% of all homeowners with a mortgage who have at least 25% equity in their homes and more than 12m borrowers with at least 50% equity in their homes. Write to Austin Kilgore.

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