Nearly three quarters of the 10.9 million homeowners who owe more than their homes are worth are paying higher, above-market interest rates on their mortgages, according to the latest numbers from real estate information and analytics provider CoreLogic.

Nevada had the highest share of negative equity mortgages at the end of the second quarter, with 60 percent of borrowers underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent) and California (30 percent).

The average negative equity share for the top five states has declined over the past year, from 41 percent to 38 percent,  primarily as a result of foreclosures, CoreLogic said.

But CoreLogic’s analysis found that the federal homebuyer tax credit that expired last year contributed to a spike in loans with a high loan-to-value (LTV) ratio in 2009.

In the span of six months in 2009, the share of loans made with LTVs between 90 percent and 100 percent increased from 13 percent to 18 percent, "which is large given such a small time period," CoreLogic said.

Top 10 states, share of negative equity mortgages


Mortgages (total)

% negative equity mortgages





1.31 million



4.37 million



1.38 million



6.83 million



1.36 million



1.31 million






2.2 million



2.24 million


Negative equity not only restricts refinancing, but also home sales, CoreLogic said. Sales of nondistressed homes are down 83 percent from their 2005 peak in ZIP codes with high negative equity, compared with 61 percent in markets with low negative equity.

Seasonal changes in sales volume in high-negative-equity ZIP codes "is very muted, which indicates that nondistressed sales are being heavily impacted by the high levels of negative equity in their neighborhood, even if sellers have equity," CoreLogic said.

About 20 million borrowers with positive equity, or 53 percent of all above-water borrowers, have loans with above-market rates, CoreLogic said, while 8 million borrowers with negative equity are in the same situation.

In unveiling a new jobs creation plan on Sept. 8, President Obama said his administration will work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent.

The administration hasn’t yet put forward a formal plan. But the day after President Obama’s address to a joint session of Congress, Fannie Mae and Freddie Mac’s regulator confirmed it’s been "reviewing the mechanics" of the existing Home Affordable Refinance Program (HARP) to identify barriers that prevent eligible borrowers from refinancing.

The Federal Housing Finance Agency also said it’s also been studying the impacts of raising the program’s current 125 percent LTV ceiling.

HARP was created to allow homeowners who have seen their property values decline to refinance without having to obtain mortgage insurance, which Fannie and Freddie usually require when borrowers have loan-to-value ratios of greater than 80 percent.

Since the program’s launch in April 2009, more than 838,000 borrowers have obtained HARP refinancings through June 30. But only about 62,000 of those homeowners were deeply underwater, with LTVs between 105 and 125 percent.

The vast majority of HARP refinancings — 92.5 percent — have helped borrowers with LTVs of between 80 and 105 percent. While some borrowers in that group are slightly "underwater," many have considerable equity in their homes, making them less likely to engage in a "strategic default."

Helping homeowners who are more deeply underwater could cost Fannie and Freddie — and therefore taxpayers — hundreds of millions of dollars. Private investors in mortgage-backed securities (MBS) guaranteed by Fannie, Freddie and Ginnie Mae would stand to lose billions.

The Congressional Budget Office has published a working paper estimating the potential cost and benefits of a hypothetical refinancing program that would allow borrowers who are current on an existing Fannie, Freddie or FHA loan to refinance regardless of their LTV.

The office estimated that if the hypothetical program generated 2.9 million refinancings, that might in turn prevent 111,000 defaults at an estimated savings of $3.9 billion for Fannie, Freddie and FHA.

Those savings would be offset by $4.5 billion in losses on the fair value of MBS held by the government, including the Federal Reserve, the Treasury, and Fannie and Freddie. The net cost to the government would therefore be about $600 million.

Private investors would stand to lose $13 billion to $15 billion, CBO estimated, noting that "most of that wealth would be transferred to borrowers."

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