First Quarter Sees Slight Decrease in Negative Home Equity

CoreLogic (NYSE: CLGX) recently released information that points to a slight decrease in negative equity across the nation by the end of the first quarter. The data shows 22.7% of all residential homes with mortgages as having negative equity, down from the fourth quarter’s 23.1%.

Combining statistics for borrowers with near-negative, or less than 5%, equity and those with negative equity mortgages accounts for 27.7% of all mortgages, down 0.2% from the fourth quarter, says CoreLogic.

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CoreLogic found that 38% of homeowners who had tapped into their homes’ equity were in a negative equity position, 20% more than those who did not have home equity loans. Additionally, those with home equity loans had higher amounts of negative home equity, with an average of $83,000, versus $52,000 for those without.

As the current combined loan-to-value ratio (CLTV) rises, says CoreLogic, default rates generally do as well. Homeowners with moderate negative equity and home equity loans generally have a lower default rate, but once the CLTV rises above 115%, they are more likely to default on loans than homeowners at the same CLTV without home equity loans.

“Many borrowers in negative equity are still able and willing to make their mortgage payments. Those in negative equity and impacted by an income shock of some kind, such as a job loss, divorce, or death, are much more likely to be at risk of foreclosure or a short sale. The current economic indicators point to slow yet positive economic growth, which will slowly reduce the risk of borrowers experiencing income shocks,” says Mark Fleming, chief economist with CoreLogic. “Yet the existence of negative equity for the foreseeable future will weigh on the housing market recovery by holding back sale and refinance activity.”

The five states with the highest negative equity percentages are Nevada (63%), Arizona (50%), Florida (46%), Michigan (36%), and California (31%). CoreLogic says the slight decrease in negative equity is due to some of the hardest-hit states, like Nevada and Arizona, experiencing a slight improvement in their negative equity shares. Overall, however, most states’ negative equity remained the same or grew slightly worse.

View the full report here.

Written by Alyssa Gerace

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