More than 7.5 million single-family homes are worth less than their mortgages, and another 2.1 million were very close to being upside down at the end of September, according to an analysis by First American CoreLogic.

First American CoreLogic used automated valuation models to analyze its huge database of public records and produce what it claims is the industry’s first state-level assessment of households with negative equity (click to download spreadsheet).

More than 7.5 million single-family homes are worth less than what’s owed on their mortgages, and another 2.1 million were very close to being upside down at the end of September, according to an analysis by First American CoreLogic.

First American CoreLogic used automated valuation models to analyze its huge database of public records and produce what it claims is the industry’s first state-level assessment of households with negative equity (click to download spreadsheet).

The analyses, of 42 million properties with mortgages, found the states with the highest percentage of upside-down mortgages were Nevada (48 percent), Michigan (39 percent), Florida (29 percent), Arizona (29 percent), California (27 percent), and Georgia (23 percent).

Those six states are home to about one in three U.S. mortgages, but account for more than 58 percent of the nation’s upside-down homes, First American CoreLogic estimated.

Take those six states out of the equation, and the percentage of U.S. homes with a negative-equity mortgage is 12 percent, rather than 18 percent, the analysis found.

Some homeowners own their property outright and do not have a mortgage. But add the 2.1 million mortgages that are within 5 percent of being upside down, and 23 percent of single-family homes with mortgages are upside down or near upside down, First American CoreLogic estimates.

Being upside down — owing more on a mortgage than a home would fetch in a sale — does not necessarily mean a homeowner will end up in foreclosure.

But for homeowners who are having trouble making their mortgage payments because of a job loss or a rate reset on an adjustable-rate mortgage, being upside down can make it difficult or impossible to pay off a loan by selling a home or refinancing it.

Analysts at Fitch Ratings this week said 1.8 million subprime ARM loans totalling $347 billion are on average six months away from their initial or next monthly payment reset.

Fitch analysts said those borrowers face an increased risk of payment shock because of the recent volatility of a benchmark interest rate used to calculate their rates.

The six-month London Interbank Offered Rate, or LIBOR, spiked between mid-September and mid-October as loans between banks became more scarce.

Although six-month LIBOR is trending down from recent highs, at its recent peak it would have caused monthly payments for many subprime borrowers to increase by 30 to 50 percent, Fitch analysts said.

Another 1.4 million subprime loans totaling $245 billion are past their initial rate reset but are also affected by changes in LIBOR, Fitch said.

An increase in workouts and loan modifications by lenders could help ease the payment shock of rate resets, Fitch analysts said. The 98,000 loan modifications granted in September by HOPE NOW loan servicers represented a 22.5 percent increase from the previous month, Fitch noted.

If the loan workouts continue at the pace seen this year, then more than 1 million of the 1.8 million subprime borrowers facing resets could be granted relief over the next six months, Fitch said.

The Bush administration is reportedly weighing a proposal that the government guarantee as many as 3 million existing loans when lenders agree to restructure them based on a borrower’s ability to repay (see story). 

***

What’s your opinion? Leave your comments below or send a letter to the editor.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×