Almost one-in-four borrowers underwater on home mortgage

Seventy Percent of all mortgaged properties in Nevada are underwater

Dennis Norman

According to a report released today by First American CoreLogic more than 11.3 million U.S. mortgages, or 24 percent of all mortgaged properties, are in a negative equity position meaning the borrowers owe more on their mortgage than their home is worth as of December 31, 2009.

There were approximately 600,000 more borrowers underwater on December 31, 2009 than just three months earlier. In addition, there were an additional 2.3 million mortgages approaching negative equity at the end of last year .

Together, negative equity and near-negative equity mortgages account for nearly 29 percent of all residential properties with a mortgage nationwide.

Like foreclosures, borrowers with negative equity are concentrated in five states: Nevada, which had the highest percentage of negative equity with 70 percent of all of the states mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among these five states the average negative equity is 42 percent of the mortgages compared with an average of 15 percent for the remaining 45 states.

Other highlights from the report are:

• The states with the highest percentage increases in negative equity during 4th quarter 2009 were Nevada, Georgia and Arizona.
• The rise in negative equity is closely tied to increases in foreclosures and is a major factor in changing the behavior of homeowners. According to the report, once a homeowner has over 25 percent negative equity or the mortgage balance is $70,000 higher than the current property value, homeowners begin to default with the same propensity as investors. In other words, they stop looking at their home from an emotional standpoint and start treating it like a bad investment.
• The average negative equity in 4th quarter was $70,700, up from $69,700 in 3rd quarter.
• Of the over 47 million homeowners with a mortgage, the average loan to value ratio (LTV) is 70 percent. More than 23 million, or 49 percent, of all homeowners with a mortgage have at least 25 percent equity in their home, and over 12 million have at least 50 percent equity in their homes.

Even though the housing market is showing signs of stabilizing in many areas, the number of people underwater on their mortgages is something that gives me great concern. As shown in the corelogic report, the average amount of negative equity has now broken the $70,000 threshold where homeowners are more easy to succumb to walking away. As borrowers due this, we will see the mortgage delinquency rates, which are already at record highs, continue at a record pace, and we will see the shocking foreclosure rate continue for some time. This will continue to put downward pressure on the housing market making an actual recovery that much more difficult.

I hate to sound gloom and doom, but I think unless some good things start happening (a whole lot less unemployment for one) this will be reality.

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