Negative equity, a key indicator of the likelihood of strategic defaults, is a factor in nearly $3 trillion in mortgages.
As of Sept. 30, there were 10,698,024 U.S. mortgages for $2.9 trillion with negative equity tracked by First American CoreLogic. The aggregate value of the properties securing those loans was $2.2 trillion.
Upside-down borrowers accounted for nearly one-quarter of outstanding loans.
First American said it analyzed 47,354,699 U.S. mortgages that accounted for 90 percent of all U.S. mortgages.
A proprietary model was utilized by First American that factors in loan amortization and utilization rates for home-equity lines-of-credit.
The report indicated another 2.3 million mortgages were above 95 percent loan-to-value.
In Nevada, nearly two-thirds of borrowers were underwater, while the rate was 48 percent in Arizona and 45 percent in Florida. Up in Michigan, 37 percent of mortgages were above 100 percent LTV, and the share was more than a third in California.
First American noted that negative equity is closely tied to the increase in pre-foreclosure activity — with low LTV borrowers exhibiting low default rates and property investors quickly abandoning investments when the LTV exceeds 100 percent.
Most negative-equity borrowers financed their homes between 2005 and 2008, and the negative-equity share peaks at 40 percent with 2006 financings. More than one-quarter of condominium owners were underwater.
“Negative equity continues to be a problem even for 2009 originations as evidenced by a negative equity share of 11 percent and another 5 percent near negative equity,” the report said.
Many upside-down borrowers utilized an adjustable-rate mortgage. The average balance on negative-equity mortgages was $280,000, though the average value was only $210,300.
