The number of “underwater” homeowners grew by about 400,000 during the final three months of 2011, to 11.1 million, as home prices fell as a result of seasonal declines and a slowdown in processing homes through the foreclosure process, data aggregator CoreLogic said today.
CoreLogic said 22.8 percent of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011, compared to 22.1 percent at the end of September.
Add another 2.5 million borrowers who had less than 5 percent equity in their homes, and 27.8 percent of homes are either underwater or in danger of becoming so in the event of further price declines.
“The high level of negative equity and the inability to pay is the ‘double trigger’ of default, and the reason we have such a significant foreclosure pipeline,” said CoreLogic Chief Economist Mark Fleming in a statement.
The economic recovery will increase the ability of homeowners to pay their mortgages, but negative equity will take longer to improve, so “if there is a hiccup in the economic recovery, it could mean a rise in foreclosures.”
Nevada had the highest negative equity percentage with 61 percent of all of its mortgaged properties underwater, followed by Arizona (48 percent), Florida (44 percent), Michigan (35 percent) and Georgia (33 percent).
The top five states combined had an average negative equity share of 44.3 percent, while the remaining states had a combined average negative equity share of 15.3 percent.
Among the 4.4 million underwater borrowers with second loans, the combined mortgage debt was $306,000 on a home worth $84,000 less, on average, for a combined loan-to-value (LTV) ratio of 138 percent.
The 6.7 million underwater borrowers who had no second loan were better off, with an average mortgage balance of $219,000 on a home worth $51,000 less, or a LTV ratio of 130 percent.
The Obama administration’s removal of a 125 percent LTV cap on the Home Affordable Refinance Program (HARP) means that more than 22 million borrowers would be eligible for the program it LTV were the only factor (only loans owned or guaranteed by Fannie and Freddie qualify for HARP, which also has minimum debt-to-income and other eligibility requirements).
According to surveys of lenders by the Mortgage Bankers Association, about 80 percent of loan applications are for refinancings, and more than 20 percent of requests to refinance last week were for HARP loans.
As for whether housing prices are headed for further declines, recent data suggest that the answer to that question depends on where a home is located and whether it or nearby properties are sold as “distressed,” Daniel Hartley, a research economist with the Federal Reserve Bank of Cleveland, noted in a recent report.
When distressed sales are excluded, CoreLogic home price indexes show average and median prices falling about 1 percent in the 50 larges U.S. markets in 2011, Hartley said. Prices fell in half of those markets, with Las Vegas experiencing the steepest decline of -8.5 percent.
But when distressed sales are included in the analysis, average and median prices fell by 3 percent in those markets, with 38 markets posting declines. In the metro Chicago area, prices were down 11.8 percent if distressed sales are included.
The proportion of distressed sales in each market varied widely, from a low of 9 percent in Nassau and Suffolk Counties of New York up to 68 percent in Las Vegas.
On average, though, the percentage of distressed sales has stabilized in many markets, and price declines have moderated, which “could be a hopeful sign for homeowners and policymakers concerned about the detrimental effects of distressed sales on nondistressed property values,” Hartley concluded.