CoreLogic Reports Number of Residential Properties in Negative Equity Decreases Again in Second Quarter of 2012
September 12, 2012, Santa Ana, Calif. –
––600,000 More Borrowers Now “Above Water” For a Total of 1.3 Million in First Half of 2012––
CoreLogic® (NYSE: CLGX), a leading provider of information, analytics and business services, today released new analysis showing that 10.8 million, or 22.3 percent, of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2012. This is down from 11.4 million properties, or 23.7 percent, at the end of the first quarter of 2012. An additional 2.3 million borrowers possessed less than 5 percent equity in their home, referred to as near-negative equity, at the end of the second quarter. Approximately 600,000 borrowers reached a state of positive equity at the end of the second quarter of 2012, adding to the more than 700,000 borrowers that moved into positive equity in the first quarter of this year.
Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
Together, negative equity and near-negative equity mortgages accounted for 27.0 percent of all residential properties with a mortgage nationwide in the second quarter, down from 28.5 percent at the end of the first quarter in 2012. Nationally, negative equity decreased from $691 billion at the end of the first quarter in 2012 to $689 billion at the end of the second quarter, a decrease of $2 billion driven in large part by an improvement in house price levels.
Most borrowers in negative equity are continuing to pay their mortgages. The share of borrowers that were underwater and current on their payments was 84.9 percent at the end of the second quarter in 2012. This is up from 84.8 percent at the end of the first quarter in 2012.
“The level of negative equity continues to improve with more than 1.3 million households regaining a positive equity position since the beginning of the year,” said Mark Fleming, chief economist for CoreLogic. “Surging home prices this spring and summer, lower levels of inventory, and declining REO sale shares are all contributing to the nascent housing recovery and declining negative equity.”
“Nearly 2 million more borrowers in negative equity would be above water if house prices nationally increased by 5 percent,” said Anand Nallathambi, president and CEO of CoreLogic. “We currently expect home prices to continue to trend up in August. Were this trend to be sustained, we could see significant reductions in the number of borrowers in negative equity by next year.”
Highlights as of Q2 2012:
- Nevada had the highest percentage of mortgaged properties in negative equity at 59 percent, followed by Florida (43 percent), Arizona (40 percent), Georgia (36 percent) and Michigan (33 percent). These top five states combined account for 34.1 percent of the total amount of negative equity in the U.S.
- Of the total $689 billion in aggregate negative equity, first liens without home equity loans accounted for $339 billion aggregate negative equity, while first liens with home equity loans accounted for $353 billion.
- Of the 10.8 million upside-down borrowers, 6.6 million hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $216,000, the average underwater amount is $51,000.
- 4.2 million upside-down borrowers possess both first and second liens. The average mortgage balance for this group of borrowers is $300,000, the average underwater amount is $84,000.
- Approximately 41 percent of borrowers with first liens without home equity loans had loan-to-value (LTV) ratios of 80 percent or higher and approximately 60 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.
- At the end of the second quarter 2012, just over 17 million borrowers possessed qualifying LTVs between 80 and 125 percent for the Home Affordable Refinance Program (HARP) under the original requirements first introduced in March 2009. The lifting of the 125 percent LTV cap via HARP 2.0 opens the door to another 5 million borrowers.
- The bulk of negative equity is concentrated in the low end of the housing market. For example, for low-to-mid value homes (less than $200,000), the negative equity share is 32 percent, almost twice the 17 percent for borrowers with home values greater than $200,000.
- As of Q2 2012, there were 1.8 million borrowers who were only 5 percent underwater. If home prices continue increasing over the next year, these borrowers could move out of a negative equity position.
The full Q2 2012 negative equity report, with charts and state-level data, is available: CoreLogic Q2 2012 Negative Equity Report.
CoreLogic data includes 48 million properties with a mortgage, which accounts for over 85 percent of all mortgages in the U.S.* CoreLogic used its public record data as the source of the mortgage debt outstanding (MDO) which includes both first mortgage liens and second liens and is adjusted for amortization and home equity utilization in order to capture the true level of mortgage debt outstanding for each property. The calculations are not based on sampling, but use the full data set to avoid any potential adverse selection due to sampling. The current value of MDO was estimated using the CoreLogic GeoAVM Core™ Cascade, a suite of CoreLogic Automated Valuation Models (AVMs) for residential properties designed to select the most appropriate valuation model from a group of individual AVMs.** The data was filtered to include only properties valued between $30,000 and $30 million because AVM accuracy tends to quickly worsen outside of this value range, which could yield either overly pessimistic or overly optimistic equity estimates.
The amount of equity for each property was determined by subtracting the estimated current value of the property from the mortgage debt outstanding. If the mortgage debt was greater than the estimated value, then the property was determined to be in a negative equity position. The data was first generated at the property level and aggregated to higher levels of geography.
*Only data for mortgaged residential properties that have an AVM value is presented. There are several states where the public record, AVM or mortgage coverage is thin. Although coverage is thin, these states account for fewer than 5 percent of the total population of the U.S.
**Beginning Q1 2012, the modeling methodology used to estimate market value was enhanced by introducing the CoreLogic GeoAVM Core Cascade. This cascade optimally selects the most appropriate AVM to predict current market value and is calibrated to market sales activity on a quarterly basis. The “cascading” approach helps achieve greater valuation accuracy, increasing the resulting precision of negative equity estimates. CoreLogic has revised the entire negative equity time series to reflect the adoption of the new methodology.
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