CoreLogic: Underwater Homeowners Strongly Correlated with Second Mortgages

CoreLogic released their Negative Equity Report for the First Quarter of 2011 earlier today.  They found that 10.9 million homeowners with mortgage were underwater, accounting for 22.7 percentage of all residential homes with mortgages.  This is down from 11.1 million underwater homes in the fourth quarter of 2010.  2.4 million more borrowers had little to no home equity (0-5%).  In all, 27.7 percent of mortgaged homes have less than 5% home equity, which is down from 27.9 percent at the end of the fourth quarter.

Unsurprisingly, there is a strong correlation between negative equity and home equity loans.  Thirty-eight percent of borrowers with home equity loans are underwater. Those with negative equity and HELOCs are down $98,000 on average, compared to $52,000 for those without HELOCs.  Intuitively, this makes a ton of sense and serves to illustrate the danger of using your home equity as an ATM.  Hindsight being 20/20, of course.

The negative equity problem remains the most acute in all the same places.  Nevada leads the nation in negative equity, with an incredible 63% of Nevada homeowners with mortgages underwater.  Fifty percent of mortgaged Arizona homes are upside down, followed by Florida (46 percent), Michigan (36 percent), and California (31 percent). These figures have changed relatively little since the last report on home equity, and negative equity will likely remain a massive problem in these markets for years to come.

Also of interest is the amount that average borrower with negative equity is underwater.  Across the country, the average person who has negative equity is $65,000 underwater. The highest average negative equity is in New York ($129,000), followed by Massachusetts ($120,000), Connecticut ($111,000), Hawaii ($98,000), and California ($93,000).  These areas typically have the highest home prices, so the high amounts of negative equity make sense.

Mark Fleming, the chief economist of CoreLogic commented:

“Many borrowers in negative equity are still able and willing to make their mortgage payments.  Those in negative equity and impacted by an income shock of some kind, such as a job loss, divorce, or death, are much more likely to be at risk of foreclosure or a short sale. The current economic indicators point to slow yet positive economic growth, which will slowly reduce the risk of borrowers experiencing income shocks.  Yet the existence of negative equity for the foreseeable future will weigh on the housing market recovery by holding back sale and refinance activity.”