Underwater With Your Mortgage? So Are A Growing Number Of Homeowners

Last Updated Jun 1, 2010 11:09 AM EDT

Underwater with your mortgage? Join the growing-bigger-by-the-minute club.

According to figures released today by First American CoreLogic, more than 11.3 million residential properties with mortgages, or 24 percent, were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009.

According to the company's latest "Negative Equity Report," an additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity.

Together, negative equity and near-negative equity mortgages accounted for "nearly 29 percent of all residential properties with a mortgage nationwide," the company stated in a press release.

Mortgage experts know that you're underwater with your mortgage if your home is worth less than your mortgage balance. Homeowners are much more likely to default on their loan if they're underwater, and new studies have found that those homeowners who are underwater by more than 25 percent are walking away from their mortgages in droves.

The study revealed:

  • Negative equity continues to be concentrated in five states: Nevada tops the list with 70 percent of all of its mortgage properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6 million, or 41 percent, of all negative equity loans.
  • The net increase in the number of negative equity borrowers in Q4 2009 was 620,000, with the largest percentage increases occurring in Nevada, Georgia (which has had a significant problem with unemployment and foreclosures) and Arizona. Among the states with the highest negative equity shares, California had the smallest increase in the negative equity share, which only rose 0.4 percent to 35.1 percent. In numerical terms, Florida had the largest increase in the number of negative equity borrowers rising by more than 141,000, followed by Georgia (65,000) and Illinois (55,000).
  • The rise in negative equity is closely tied to increases in pre-foreclosure activity and is a major factor in changing homeowner default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property values, owners begin to default with the same propensity as investors.
  • The aggregate dollar value of negative equity was $801 billion, up $55 billion from $746 billion in Q3 2009. The average equity for an underwater borrower in Q4 was -$70,700, up from -$69,700 in Q3 2009. The segment of borrowers that are 25 percent or more in negative equity account for over $660 billion in aggregate negative equity.
  • 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 home.
"Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners," said Mark Fleming, chief economist with First American CoreLogic said in the release. "Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come."

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.
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    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.