July 16, 2012 4:56 am
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.
Together, negative equity and near-negative equity mortgages accounted for 28.5 percent of all residential properties with a mortgage nationwide in the first quarter, down from 30.1 percent in the fourth quarter of 2011. More than 700,000 households regained a positive equity position in the first quarter of 2012. Nationally, negative equity decreased from $742 billion in the fourth quarter of 2011 to $691 billion in the first quarter, a fall of $51 billion in large part due to an improvement in house price levels.
"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," explains 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. Reducing the number of underwater households is an important step toward reducing future mortgage default risk."
Further highlights from the first quarter of 2012 include:
- Of the 11.4 million upside-down borrowers, there are 6.9 million first liens without 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 upside-down 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 LTVs of 80 percent or higher.
- Nearly 17 million borrowers were between 80 percent and 125 percent LTV in the first quarter of 2012 and, purely 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 low end of the market is where the bulk of the negative equity is concentrated. 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.
- As of the first quarter of 2012, there were 1.9 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.
Published with permission from RISMedia.