Written by Ilyce Glink on January 21, 2011 in Real Estate  |   7 comments

Underwater with your mortgage? You’re not alone

Are you underwater with your mortgage? You’re not alone.

According to the latest figures from CoreLogic, 10.8 million, or 22.5 percent, of all residential properties with mortgages were in negative equity at the end of the third quarter of 2010, down from 11 million and 23 percent in the second quarter.

Unfortunately, the decrease in the number of homeowners who are underwater with their loans was due primarily to foreclosures of severely negative-equity properties rather than an increase in home values.

The CoreLogic Negative Equity Report shows that during 2010, the number of borrowers with negative equity declined by over 500,000 borrowers. An additional 2.4 million borrowers had less than 5 percent equity in the third quarter. Together, negative-equity and near-negative-equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.

Here are some highlights from the third quarter report:

• Negative equity remains concentrated in five states. Nevada has the highest concentration of homes in negative equity, with 67 percent of its mortgage properties underwater. Just about a third of all residential properties in Nevada have some sort of equity. The other top four states are Arizona (49 percent of homes underwater), Florida (46 percent), Michigan (38 percent), and California (32 percent).
• The largest declines in negative equity were concentrated in the hardest-hit states. After Alaska, which had the largest decline in negative equity (falling 1.8 percentage points), the states with the largest declines were Nevada (-1.6 percent), Arizona (-1.4 percent), California (-1.2 percent), and Florida (-0.9 percent).
• Negative equity rose in Idaho and Alabama. These two states are at the top of the list for home price depreciation at the moment, so it makes sense that the number of homeowners whose properties are underwater is increasing.
• Many homeowners have significant equity. Nearly half of New York borrowers have 50 percent or more positive equity, which leads the nation, followed by Hawaii (43 percent), Massachusetts (40 percent), Rhode Island (40 percent), and Connecticut (39 percent).
• The homeownership rate is falling. According to the census, the Q3 2010 homeownership rate was 66.9 percent, down from a peak of 69.2 percent in Q4 2004. However, the census definition of homeownership includes homeowners with negative equity; if you remove all negative-equity homeowners, there is an effective homeownership rate of 56.6 percent, or 10 percentage points lower than the official rate.
• The amount of negative equity is falling. The aggregate level of negative equity declined to $744 billion, which is a 3 percent decline from Q2 2010 and a 7 percent decline from the end of 2009 (when it stood at $800 billion).

One of the most interesting findings is that the pre-foreclosure rate is higher for borrowers with more expensive homes (above $500,000) than for borrowers with low- to moderately priced homes (between $100,000 and $300,000). Interestingly, once these homeowners fall into deep negative equity, the relationship reverses, with the low- to moderately priced homes exhibiting fairly higher pre-foreclosure rates (figure 6).

“Negative equity is a primary factor holding back the housing market and broader economy. The good news is that negative equity is slowly declining, but the bad news is that price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity,” said Mark Fleming, chief economist with CoreLogic.

READ MORE:
The Best Way To Value Investment Property
How to Find a Great Real Estate Agent
Will the Real Estate Summer Slowdown Mean Lower Prices?
No More Home Buyer Tax Credits: Is Now a Good Time to Buy a House?

1. Dan.Eliot says:

   January 21, 2011 at 9:28 am

   If you own a home or are thinking about buying a home, knowing the difference between home equity loans and a mortgage is imperative before making a purchase. Both are types of financial transactions that involve the value of a house and how that value is assessed and used.A mortgage is given to a prospective homebuyer when he takes out a loan to purchase a house while, Equity is the value of a home, minus the remaining amount owed on the mortgage. Learn more:

   Home credit tips

   Reply
2. Ilyce says:

   January 24, 2011 at 11:56 pm

   Thanks, Dan for your comments. Of course, it's also helpful to understand that difference between a home equity line of credit (where you pay interest on the amount borrowed) vs. a second mortgage, in which a fixed amount is borrowed and repaid with a set amortization schedule and interest rate. Thanks for reading the blog.

   Reply
3. RFgirl says:

   January 25, 2011 at 9:49 pm

   I think that is is horrible that the consumer is bearing the weight of the mortgage financing fallout. When I purchased my home in 2003 it was valued at $281,000. I a home equity loan out of $50,000 which was used for home improvements. That is a total of $331,000. I now look on the internet and see my home valued at a mere $212,000. I pay my mortgage each month and had a least 20% equity in my home. Now my equity is gone. Which is just like throwing money out the window. I realize there were a lot of foreclosures, but I do not think that foreclosures should adversely impact my home's value by such a signficant slide. If I am to take such a huge loss why can't the bank do the same thing. I believe that to be fair to homeowners that there should be a 50/50 deal between the bank and the homeowner. Mainly reduce the account I owe by 50% of the decreasing value. So if my house was orginally worth $335,000 and is now worth $212,000. Take $335,000-212,000=$122,000. Divide the difference of $122,000 by 2 and reduce my loan by $61,000. I think that is only fair. Why should the consumer have such a high rate of reverse equity when it was the bank's fault for making bad loans. Give us a break we need help too. We can't even refinance because the the reverse equity. So we are stuck between a rock and a hard place.

   Reply
4. Ilyce Glink says:

   January 25, 2011 at 10:39 pm

   @RF Girl:

   It's interesting that you believe you should be compensated because your equity has evaporated in the current marketplace. If the marketplace sets value based on what someone is willing to pay for property in a given neighborhood, and an appraisal is supposed to be the accumulation and explanation of that data, why shouldn't your home go down in value if your neighborhood is populated by foreclosures?

   In that scenario, no one will pay you what you think your house is worth – they'll only pay you about what someone paid for the last foreclosure sold (unless you can prove your home is very different and in much better shape and someone is willing to pay extra for that).

   Shared appreciation mortgages were popular when I first starting writing about real estate. And, they're great in theory – if you and the lender are willing to be co-investors in your real estate purchase.

   The problem comes when home prices rise. If your home had gone up in value by 50 percent, would you have been willing to give half of the profits to the bank?

   Most people would say "No," and that's not how our system of capitalism is based.

   The good news is that you can't believe anything you read when it comes to home values on the Internet. The websites are almost always wrong, and by a lot. It's entirely possible your home is valued anywhere from $212,000 (extremely low end) to $350,000. It just depends on what is going on in your neighborhood.

   If you really want to find out what your property is worth – ask a local Realtor.

   Thanks for your comment.

   Reply
5. Editor, Equifax Personal Finance Blog says:

   March 3, 2011 at 9:02 pm

   Comment from Troy at ActiveRain:

   Your numbers are better than our. In Sarasota, about 50% of the owners with mortgages are underwater. I have never seen a better time to buy Real Estate.

   http://activerain.com/blogsview/2090001/underwater-with-your-mortgage-you-re-not-alone

   Reply
6. Editor, Equifax Personal Finance Blog says:

   March 3, 2011 at 9:02 pm

   Comment from William at ActiveRain:

   I haven't seen the numbers for CT, except I can say that I'm one of the ones who is underwater. But this, too, will pass…

   http://activerain.com/blogsview/2090001/underwater-with-your-mortgage-you-re-not-alone

   Reply
7. jackie100 says:

   June 7, 2011 at 3:47 pm

   The new mortgage reforms will definitely have a significant impact on the housing market because many prospective homeowners will not be able to meet the stringent income to mortgage payment ratio of 28% and heftier down payments. As a result we will see more renters.

   Gmac Mortgage

   Reply

Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:

1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

• Credit RSS Feed
• Family Money RSS Feed
• Insurance RSS Feed
• Newsletter RSS Feed
• Real Estate RSS Feed
• Retirement RSS Feed
• Small Business RSS Feed
• Tax RSS Feed
• Video Contest RSS Feed