An additional 2.3 million borrowers had less than 5 percent equity in their home, referred to as near-negative equity, at the end of the second quarter.
So far in 2012, 1.3 million homeowners have moved from underwater status into positive equity.
Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
About one in four homeowners with a mortgage in the U.S. (27 percent) had negative or near-negative equity in the second quarter, a drop from 28.5 percent in the first quarter.
Most borrowers in negative equity continue to pay their mortgages; 84.9 percent of underwater homeowner were current on their mortgage payments, up from 84.8 percent at the end of the first quarter.
“Surging home prices this spring and summer, lower levels of inventory, and declining REO sale shares are all contributing to the nascent housing recovery and declining negative equity,” says Mark Fleming, chief economist for CoreLogic.
“Nearly 2 million more borrowers in negative equity would be above water if house prices nationally increased by 5 percent,” adds Anand Nallathambi, president and CEO of CoreLogic. “We currently expect home prices to continue to trend up in August. Were this trend to be sustained, we could see significant reductions in the number of borrowers in negative equity by next year.”
Highlights as of Q2 2012
• Nevada had the highest percentage of mortgaged properties in negative equity at 59 percent, followed by Florida (43 percent), Arizona (40 percent), Georgia (36 percent) and Michigan (33 percent). These top five states combined account for 34.1 percent of the total amount of negative equity in the U.S.
• Of the total $689 billion in aggregate negative equity, first liens without home equity loans accounted for $339 billion aggregate negative equity, while first liens with home equity loans accounted for $353 billion.
• Of the 10.8 million upside-down borrowers, 6.6 million hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $216,000, the average underwater amount is $51,000, and 18 percent of the 6.6 million are in negative equity.
• 4.2 million upside-down borrowers have both first and second liens. The average mortgage balance for this group of borrowers is $300,000, the average underwater amount is $84,000 and 38 percent of the 4.2 million are in negative equity.
• Approximately 41 percent of borrowers with first liens without home equity loans had loan-to-value (LTV) ratios of 80 percent or higher and approximately 60 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.
• At the end of the second quarter 2012, just over 17 million borrowers possessed qualifying LTVs between 80 and 125 percent for the Home Affordable Refinance Program (HARP) under the original requirements first introduced in March 2009. The lifting of the 125 percent LTV cap via HARP 2.0 opens the door to another 5 million borrowers.
• The bulk of negative equity is concentrated in the low end of the housing market. For example, for low-to-mid value homes (less than $200,000), the negative equity share is 32 percent, almost twice the 17 percent for borrowers with home values greater than $200,000.
• As of Q2 2012, there were 1.8 million borrowers who were only 5 percent underwater. If home prices continue increasing over the next year, these borrowers could move out of a negative equity position.
© 2012 Florida Realtors®