According to CoreLogic nearly 22.7% of all U.S. homeowners were in a negative equity position with their mortgages at the end of the first quarter of 2011, down slightly from 23.1% in the 4th quarter of 2010. In a report released Tuesday, CoreLogic states that some 10.9 million borrowers have underwater mortgages and another 2.5 million borrowers were in a near-negative equity position, which the housing data and analytics company defines as having less than 5% positive equity.
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While the drop in housing prices caused much of the negative equity, equity extraction was also a key driver. Borrowers with home equity loans were twice as likely to suffer negative equity as those with only one lien. 18% of borrowers without home equity loans were underwater while 38% of borrowers with 2nd mortgages were in a negative position. A total of 4.5 million negative equity borrowers have equity loans or other second mortgage liens.
The current CoreLogic report does not attach a total dollar value to negative equity statistics but an analysis of the distribution of negative equity based on fourth-quarter 2010 numbers was published by the company last month which put the aggregate national net equity at $750 billion. The percentage of underwater mortgage loans has only fallen 4 basis points since that time.
Many borrowers in negative equity are still able and willing to make their mortgage payments, Mark Fleming, CoreLogic’s chief economist said. “Those in negative equity and impacted by an income shock of some kind, such as a job loss, divorce, or death, are much more likely to be at risk of a home loan default or a short sale.
Loan default rates rise with the level of negative equity but not necessarily with the number of outstanding loans. At a low level – a CLTV under 5% – the default rate is slightly above 2% with multi-lien properties defaulting at a slightly higher rate than single lien properties. Above the 115% CLTV level where the default rate is 4 %, single lien properties begin to default at a fractionally higher rate than multiple lien properties. Once the combined loan to value reaches 125% the default rate soars, reaching 12% at 150+ % CLTV with single lien properties marginally higher than those with 1st and 2nd mortgage loans.
The negative position of individual borrowers is significant. The average underwater borrower owes $65,000 more than his property is worth. Understanding the significance of the underwater mortgages is significant because it underscores the housing crisis and gives us a clear signal that we are nowhere near escaping the housing depression.
