Study Finds Fewer Borrowers Sinking in Negative Equity

The depreciation of home values over the past half-decade has left millions of mortgage borrowers owing more than their home is worth – 10.7 million, according toCoreLogic.

The company released its third-quarter update on negative equity within the U.S. housing market Tuesday. It shows that 22.1 percent of all residential properties with a mortgage were underwater as of the end of September.

That’s actually down from 22.5 percent – or 10.9 million borrowers – at the end of the second quarter, but CoreLogic says the number remains high and makes borrowers more vulnerable to economic shocks such as job loss or illness.

Nevada has the highest negative equity percentage with 58 percent of all its mortgaged properties underwater, followed by Arizona (47 percent), Florida (44 percent), Michigan (35 percent), and Georgia (30 percent).

This is the first quarter that Georgia entered the top five, surpassing California which had been in the top five since CoreLogic began tracking negative equity in 2009.

The top five states combined have an average negative equity ratio of 41.4 percent, while the remaining states have a combined average negative equity ratio of 17.6 percent.

Mortgage borrowers in New York have fared the best through the downturn, with just 6.3 percent in a negative equity position.

Other states on the low end of the spectrum include: North Dakota (6.9 percent), Oklahoma (7.3 percent), Pennsylvania (7.9 percent), and Montana (8.4 percent).

Should home prices continue to fall further, another 2.4 million mortgage borrowers in the U.S. could sink underwater – that’s the number of borrowers CoreLogic says had less than 5 percent equity in their homes, referred to as near-negative equity, in the third quarter.

Together, negative equity and near-negative equity mortgages accounted for 27.1 percent of all residential properties with a mortgage nationwide in the third quarter.

CoreLogic’s report provides additional details on the population of borrowers that are currently underwater.

Of the 10.7 million borrowers in negative equity, there are 6.3 million first liens without home equity loans that have an average mortgage balance of $222,000. They are underwater by an average of $52,000 which equates to an average loan-to-value (LTV) ratio of 131 percent.

The remaining 4.4 million negative equity borrowers hold first liens and home equity loans with an average mortgage balance of $309,000. These borrowers are underwater by an average of $84,000 and have an average LTV of 137 percent.

Given that bank portfolios account for 15 percent of all first lien mortgages, CoreLogic estimates that 1.6 million loans in a negative equity position are held by banks. Collectively these loans are underwater by about $105 billion.

Altogether, the 10.7 million borrowers who owed more than their home was worth at the end of the third quarter were underwater by a total of $699 billion by CoreLogic’s assessment.