CoreLogic released data showing that 11.4 million (23.7 percent) of all residential properties with a mortgage had negative equity and were “underwater” at the end of the first quarter of 2012. But that’s a drop from the 12.1 million properties, or 25.2 percent, in the fourth quarter of 2011.
An additional 2.3 million borrowers had less than 5 percent equity, referred to as near-negative equity, in the first quarter.
Underwater borrowers owe more on their mortgage than their home is worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
Together, negative equity and near-negative equity mortgages accounted for 28.5 percent of all residential U.S. properties with a mortgage in the first quarter, down from 30.1 percent in the fourth quarter of 2011. By the first quarter of 2012, however, more than 700,000 households regained a positive equity position. Nationally, negative equity decreased from $742 billion to $691 billion in the first quarter – a $51 billion increase in real estate worth due, in large part, to an uptick in house prices.
“In the first quarter of 2012, rebounding home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share,” says Mark Fleming, chief economist for CoreLogic. “This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest hit markets.”
“Although it will still be a slow recovery for U.S. homeowners, we see this improvement as a stabilizing and positive development for the mortgage industry,” says Anand Nallathambi, president and CEO of CoreLogic.
Highlights of CoreLogic first quarter 2012 report:
• Nevada had the highest negative equity percentage with 61 percent of all mortgaged properties underwater, followed by Florida (45 percent), Arizona (43 percent), Georgia (37 percent) and Michigan (35 percent). These top five states combined have an average negative equity share of 44.5 percent, while the remaining states have a combined average negative equity share of 15.9 percent.
• Of the 11.4 million underwater borrowers, 6.9 million first liens don’t have home equity loans. This group of borrowers has an average mortgage balance of $212,000 and is underwater by an average of $47,000. For all first-lien-only borrowers, the negative equity share was 19 percent while 42 percent of all first-lien-only borrowers had a loan to value (LTV) ratio of 80 percent or higher.
• The remaining 4.5 million underwater borrowers had both first and second liens. The average mortgage balance for this group was $299,000, and they were upside-down by an average of $82,000. The negative equity share for all first-lien borrowers with home equity loans was 39 percent, more than twice the share for all first-lien-only borrowers. More than 60 percent of borrowers with first liens and home equity loans had combined loan-to-value ratios (LTVs) of 80 percent or higher.
• Nearly 17 million borrowers were between 80 percent and 125 percent LTV in Q1 2012 and, from an LTV perspective, eligible for the Home Affordable Refinance Program (HARP) under the original requirements first introduced in March 2009. The removal of the 125 percent LTV cap via HARP 2.0 means that more than 22 million borrowers are currently eligible for HARP 2.0 when just considering LTV alone.
• The bulk of the negative equity is concentrated in the low end of the market. For example, for low-to-mid value homes valued at less than $200,000, the negative equity share is 31 percent for borrowers – almost twice the 15.9 percent for borrowers with home values greater than $200,000.
• Of the total $691 billion in aggregate negative equity, first liens without home equity loans accounted for $326 billion aggregate negative equity, while first liens with home equity loans accounted for $365 billion.
• As of Q1 2012, 1.9 million borrowers were only 5 percent underwater. If home prices continue increasing over the next year, these borrowers could move out of a negative equity position.