Ranks of Underwater Borrowers Decline, Thanks to Foreclosure
The number of Americans that owe more on their mortgages than their homes are worth declined during the second quarter of 2010, but not because home prices have improved. Instead, according to a new report, increased foreclosures have helped flush underwater borrowers out of the nation's housing markets.
According to a report from information services provider CoreLogic ($26.01 -0.21%) released Thursday morning, 11 million -- or 23% -- of all residential properties with mortgages were in a negative equity position at the end of the second quarter.
The Q2 numbers are an improvement compared to the 11.2 million properties and 24% of mortgages identified as underwater at the end of the first quarter of this year.
Job loss and a lack of borrower equity are often cited as the two more common reasons for a mortgage default. CoreLogic found that the largest improvements in negative equity positions occurred among properties with a loan-to-value ratio of over 125% -- ostensibly as borrowers decided to stop paying on their mortgages and walk away from their debts.
"Negative equity continues to both drive foreclosures and impede the housing market recovery. With nearly 5 million borrowers currently in severe negative equity, defaults will remain at a high level for an extended period of time," said Mark Fleming, chief economist with CoreLogic.
The 11 million negative equity properties are backed by $2.9 trillion in mortgage debt outstanding, the company said.
On a dollar basis, the negative equity share was 33 percent percent of mortgage debt outstanding, and the total dollar value of negative equity was $766 billion.
As it has throughout the nation's housing crisis, the problem of negative equity remains concentrated in five states: Nevada, which had the highest percentage negative equity with 68% of all of its mortgaged properties underwater, followed by Arizona (50%), Florida (46%), Michigan (38%) and California (33%).
Home prices have fallen 34% since their peak in mid 2006, according to Standard & Poor's housing price data. If prices resume their downward trend, as some analysts expect to happen later this year, the number of underwater homeowners could again grow.
Paul Jackson is the publisher of HousingWire Magazine and HousingWire.com.
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