The number of borrowers with negative equity improved in the first quarter of 2010. However, 28% of all residential properties have underwater mortgages or less than 5% home equity, according to the latest data from CoreLogic.
More than 11.2 million homeowners, about 24% of all residential properties with mortgages had negative equity at the end of the first quarter 2010. Down from 11.3 million, or 24%, in the last quarter of 2009.
The state with the highest rate of negative equity mortgages continues to be Nevada, where 70% of all properties are underwater, followed by Arizona (51%), Florida (48%), Michigan (39%) and California (34%).
Not only did the number of underwater borrowers improve, but the dollar amount of the negative equity also declined for many. The number of borrowers with a loan-to-value (LTV) of 125% or more, totaled 4.9 million, or 10.4%, down from 5 million, or 10.6% the previous quarter. The dollar value of the negative equity of borrowers with 125% LTV or higher is $656 billion.
Strategic defaults by homeowners that can afford their mortgage payments, but choose not to pay their loans due to their negative equity, is a major clause of defaults and foreclosures.
“The two most important triggers of default — negative equity and unemployment — have stabilized over the last six months,” said CoreLogic chief economist Mark Fleming.” As house prices grow again and borrowers pay down their mortgage debt, negative equity levels will begin to diminish,” Fleming added. “The typical underwater borrower is likely to regain their lost equity over the next five to seven years.”
Further, CoreLogic said 38% of all borrowers with second mortgages were underwater, versus to 19% of borrowers that did not have any junior liens. In addition, the foreclosure rate for borrowers with junior liens was double that of borrower without junior liens, 4%, compared to 2%.
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