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Fewer homeowners underwater, but number is still high

More than 10 million homeowners are underwater, meaning their properties are worth less than the mortgage amount owed, according to the latest figures from CoreLogic, a California-based provider of information, analytics and business services.

Corelogic reported that 10.7 million, or 22.1 percent, of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2011. This is down slightly from 10.9 million properties in the second quarter.

An additional 2.4 million borrowers had less than 5 percent equity, referred to as near-negative equity. 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, down from 27.5 in the previous quarter.

While that seems like better news for the housing industry, homeowner negative equity remains near historic highs.

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"The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy," said Mark Fleming, chief economist with CoreLogic.

According to the report, Nevada still has the highest percentage of negative equity, with 58 percent of all mortgaged properties in the state 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 tracking began in 2009.

Nearly 22 million homeowners, or 45 percent of all borrowers, have mortgages with an 80 percent or more loan-to-value (LTV) ratio, and 69 percent of those mortgages have above-market interest rates of 5 percent or more. Conversely, only 54 percent of borrowers who have less than 80 percent LTV have above-market interest rates.

While above-market interest rates make refinancing at today's historically low rates a cost-effective step for qualified homeowners, it can be more difficult for borrowers with above-average LTV ratios to qualify for refinancing.

Of the 10.7 million borrowers with negative equity, there are 6.3 million first mortgages 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 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.

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