Tuesday, September 13, 2011
Fewer Home Owners in Negative Equity Status
An additional 2.4 million borrowers had less than five percent equity in the second quarter. The new report also shows that nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages.
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.
• Nevada had the highest negative equity percentage with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent) and California (30 percent).
• The negative equity share in the hardest hit states improved. Over the past year, the average negative equity share for the top five states has declined from 41 percent to 38 percent. Nevada had the largest decline over the last year, with the negative equity share dropping from 68 percent to 60 percent, due largely to the high number of foreclosures that removed those underwater mortgages from the equation.
• Nearly 28 million outstanding mortgages that are above-market rates and could refinance to save money.
• Twenty million borrowers with positive equity – 53 percent of all above-water borrowers – have mortgage rates higher than those currently offered.
• Eight million borrowers with negative equity – nearly 75 percent of all underwater borrowers – have above market rates.
• The disparity is greater for homeowners with severe negative equity. More than 40 percent of borrowers with 125 percent or higher loan-to-value (LTV) ratios have mortgages with rates at 6 percent or above compared to only 17 percent for borrowers with positive equity.
• Since the 2005 sales peak, non-distressed sales in zip codes with low negative equity have fallen 61 percent, compared to an 83 percent sales decline in high negative equity zip codes.
“High negative equity is holding back refinancing and sales activity, and is a major impediment to the housing market recovery,” said Mark Fleming, chief economist with CoreLogic. “The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices.”
© 2011 Florida Realtors®