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Dollar Volume of Negative Equity Decreased by $8 Billion from Q2 2015 to Q3 2015

National Negative Equity Share Remains Under 10 Percent in Q3 2015

Molly Boesel    |    Mortgage Performance

The nationwide negative equity share decreased from 8.7 percent in Q2 2015 to 8.1 percent in Q3 2015, while the number of underwater loans (or those in negative equity) fell from 4.3 million to 4.1 million over the same period, according to the latest CoreLogic Equity Report . The total dollar amount of negative equity, which applies to borrowers who owe more on their mortgages than their homes are worth, fell to $301 billion in Q3 2015, down by $8.1 billion from Q2 2015.

Q3 2015 marked the second consecutive quarter with a negative equity share below 10 percent representing continued improvement from the peak negative equity share of 26 percent in Q4 2009.

Quarter over quarter, 40 states exhibited decreases in the negative equity share in Q3 2015, and any increases were minimal –less than one percentage point. Figure 1 illustrates the 25 states with the largest percentage-point change in the negative equity share from the previous quarter. Nevada’s 1.4-percentage-point decrease between Q2 2015 and Q3 2015 represented the largest decline, while Alabama’s 0.7-percentage-point increase represented the largest gain.

Figure 2 shows the dollar amount of negative equity for the nation’s 10 largest Core Based Statistical Areas (CBSAs) based on the number of outstanding mortgages. Of these CBSAs, New York had the highest total of underwater mortgage dollars as of Q3 2015 at $15.2 billion, followed by Chicago at $14.2 billion and Los Angeles at $8.6 billion. Of the 10 CBSAs shown in Figure 2, only three have negative equity shares above the national share of 8.1 percent.

Also according to the latest CoreLogic analysis, mortgage default rates1 fell slightly in Q3 2015. Nationally, homes with positive equity had a default rate of 0.5 percent and homes with negative equity had a default rate of 2.6 percent.

Negative equity varies a lot by price tier. Trends suggest that there is a high concentration of negative equity mortgages in the low end of the housing market. Homes valued at less than $100,000, for example, had a negative equity share of 18.2 percent in Q3 2015, which is more than twice the national share of 8.1 percent. Homes valued between $100,000 and $200,000 had the second-highest negative equity share of 10.7 percent. On the other end of the scale, homes valued at more than $200,000 had only a 4.7 percent negative equity share, but represented 87 percent of the negative equity dollars nationwide.

[1] Default rates are calculated by dividing the number of properties in a group for which a Notice of Default (NOD) has been issued by the total number of properties in the specific cohort group. The result is the default rate for the cohort.

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