CoreLogic has released new analysis showing approximately 100,000 more borrowers reached a state of positive equity during the third quarter of 2012, adding to the more than 1.3 million borrowers that moved into positive equity through the second quarter of 2012. This brings the total number of borrowers who moved from negative equity to positive equity September YTD to 1.4 million. 10.7 million, or 22 percent, of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2012. This is down from 10.8 million properties, or 22.3 percent, at the end of the second quarter of 2012. An additional 2.3 million borrowers had less than five percent equity in their home, referred to as near-negative equity, at the end of the third quarter.
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 26.8 percent of all residential properties with a mortgage nationwide in the third quarter of 2012, down from 27 percent at the end of the second quarter in 2012. Nationally, negative equity decreased from $689 billion at the end of the second quarter in 2012 to $658 billion at the end of the third quarter, a decrease of $31 billion. This decrease was driven in large part by an improvement in house price levels. This dollar amount represents the total value of all homes currently underwater nationally.
“Through the third quarter, the number of underwater borrowers declined significantly,” said Mark Fleming, chief economist for CoreLogic. “The substantive gain in house prices made in 2012, partly due to tight inventory caused by negative equity’s lock-out effect, has paradoxically alleviated some of the pain.”
“There has been steady progress relative to reducing negative equity and its effects in 2012; but, with nearly one quarter of borrowers still underwater we have a long way to go,” said Anand Nallathambi, president and CEO of CoreLogic. “As we look ahead into 2013, we expect to continue to see more borrowers’ escape the negative equity trap and that will be a strong positive for the housing market specifically and the broader economy generally.”
Highlights as of Q3 2012:
►Nevada had the highest percentage of mortgaged properties in negative equity at 56.9 percent, followed by Florida (42.1 percent), Arizona (38.6 percent), Georgia (35.6 percent) and Michigan (32 percent). These top five states combined account for 34 percent of the total amount of negative equity in the U.S.
►Of the total $658 billion in aggregate negative equity, first liens without home equity loans accounted for $323 billion aggregate negative equity, while first liens with home equity loans accounted for $334 billion.
►6.6 million upside-down borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $214,000. The average underwater amount is $49,000.
►4.1 million upside-down borrowers possess both first and second liens. The average mortgage balance for this group of borrowers is $298,000.The average underwater amount is $82,000.
►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 61 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.
►At the end of the third quarter 2012, 17.1 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 4.6 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 28.7 percent, almost twice the 14.6 percent for borrowers with home values greater than $200,000.
►As of Q3 2012, there were 1.8 million borrowers who were only 5 percent underwater, who if home prices continue increasing over the next year, could return to a positive equity position.
Figure 1 - Negative Equity Concentrated Mostly in Sand States
Figure 2 - Distribution of Equity Widely Varies by State
Figure 3 – National Distribution of Home Equity