Nearly seven in 10 homeowners with loan-to-value ratios of 80 percent or more are paying above-market mortgage rates and may be unable to refinance in order to take advantage of today’s lower rates, a new report by data aggregator CoreLogic shows.

Homebuyers who made small down payments when purchasing their property or who took cash out when refinancing or obtaining a home equity loan are also more likely to find themselves "underwater" — owing more than their home is worth because of falling home prices.

Most homes that go into foreclosure are underwater, with LTVs exceeding 100 percent. A homebuyer making a 5 percent down payment starts out with an LTV of roughly 95 percent, while a homeowner making 20 percent down payment has an LTV of about 80 percent.

So a homebuyer making a 5 percent down payment on a $200,000 home would find themselves underwater if the value of that home suddenly dropped by 10 percent, increasing their LTV to 105 percent. A homebuyer who made a 20 percent downpayment on the same house would see their LTV increase to 89 percent, leaving them with 11 percent equity in their home.

A national home price index compiled by CoreLogic shows home prices have fallen by 31.2 percent from their April 2006 peak.

Falling home prices, coupled with minimal down payments and cash-out refinancings and home equity loans, mean that 45 percent of all homeowners with mortgages — 22 million in total — had LTVs of 80 percent or more at the end of September, CoreLogic found.

Among that group, 69 percent are paying above-market mortgage rates of 5 percent or more on their loans, CoreLogic said, compared to 54 percent of borrowers with LTVs of less than 80 percent.

More than six in 10 homeowners who have taken out home equity loans have combined LTVs of 80 percent or higher, and 38 percent are underwater — more than twice the rate for borrowers who only have first lien loans.

Underwater borrowers with home equity loans have $309,000 in total mortgage debt on average, and their homes are typically worth $84,000 less than that, for a combined LTV of 137 percent.

Underwater borrowers who don’t have home equity loans owe $222,000, on average — $52,000 more than their homes are worth — for an average LTV of 131 percent.

The Obama administration created the Home Affordable Refinancing Program (HARP) in 2009 to help homeowners with little or no equity refinance.

But only borrowers whose loans are backed by Fannie Mae and Freddie Mac are eligible to participate, and lenders have been reluctant to refinance loans with LTVs exceeding 105 percent.

According to the latest numbers from Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), lenders had completed nearly 894,000 HARP refinancings through August, but only about 72,000 were mortgages with LTVs greater than 105 percent.

In an attempt to boost HARP participation, last month Fannie and Freddie said they will release lenders who sign off on a refinanced loan from some legal liabilities associated with the original loan. FHFA officials hope that and other changes to the HARP program will result in another 1 million refinancings.

Even then, the HARP program would only help a small percentage of underwater borrowers, and Fannie, Freddie and the Federal Housing Administration (FHA) are gearing up for bulk sales to investors as one strategy for coping with an expected flood of foreclosed properties.

About 22.1 percent of homes with mortgages were underwater at the end of September, CoreLogic said. That’s down from 22.5 percent at the end of June but still represents about 10.7 million homes.

Nevada has the highest negative equity percentage, with 58 percent of mortgaged properties underwater, followed by Arizona (47 percent), Florida (44 percent), Michigan (35 percent) and Georgia (30 percent).

Those five states combined have an average negative equity ratio of 41.4 percent, compared to 17.6 percent in the rest of the country.

"Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness," said CoreLogic chief economist Mark Fleming in a statement.

"The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy."

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