More than 22% of Mortgages Still Underwater, Levels Recede Slightly

Negative equity among borrowers across the United States decreased slightly in the third quarter of 2011, according to data released by CoreLogic (NYSE:CLGX) on Nov. 29, but more than a quarter of residential mortgage borrowers are underwater or close to it.

While the numbers are still high, with 22.1% of residential properties had a mortgage in negative equity at the end of the third quarter, it’s down slightly from 22.5% in the second quarter.

Additionally, 2.4 million borrowers had less than 5% equity, placing them in the “near-negative” equity category. Together, negative and near-negative equity mortgages accounted for 27.1% of all residential properties with a mortgage, down from 27.5% in the previous quarter.

“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, in a statement.

Nevada remains the state with the highest percentage of underwater mortgages, at 58%, followed by Arizona, with 47%, Florida, with 44%, and Michigan, with 35%. Georgia, with 30% of mortgages underwater, overtook California’s fifth-place spot for the first time since tracking began in 2009.

Combined, these five states have an average negative equity ratio of 41.4%, compared to the remaining states’ combined average negative equity ratio of 17.6%.

Out of 10.7 million borrowers in negative equity, 4.4 million hold first liens and home equity loans with an average mortgage balance of $309,000, according to CoreLogic, and the negative equity share for first lien borrowers with home equity loans is 38%—twice the share for first lien-only borrowers.

Written by Alyssa Gerace

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