Foreclosures Hitting High-End Homes

Thirty percent of U.S. foreclosures are occurring among the top third, an indication that the foreclosure crisis is hitting well-to-do homeowners in almost equal proportion to lower income families.

The data, released by the real estate data company Zillow Inc., shows that as of July 2009, foreclosures were almost evenly distributed through all segments of the real estate market, with the bottom and middle third of home values each making up 35 percent of total foreclosures, with the top third taking the rest.

That represents an almost doubling of the share of foreclosures represented by the top end of the market compared to three years ago, when only 16 percent of foreclosures occurred among homes in the top third of market values. By comparison, the share of foreclosures in the bottom third of the market has dropped dramatically, down from 55 percent three years ago, while the percentage of foreclosures in the middle third of the market has increased only slightly, up from 29 percent.

Zillow Chief Economist Stan Humphries wrote that the changes are not so much due to increasing foreclosures among the well-to-do nationally, but that high foreclosure rates are concentrated in areas where home values are high.

The report also found a strong correlation between negative equity and a failure to resolve loan delinquencies once borrowers fall behind on their mortgage payments. According to Zillow, 23 percent of all single-family homeowners with mortgages, nearly one in four, are "underwater" on their loans, owing more than the property is worth.

According to data from Amherst Securities, once a homeowner falls delinquent, the chances that they will become current again on their loan becomes increasingly unlikely the further underwater they are. Even prime loan borrowers who are not underwater, half of those who miss one mortgage payment will go on to become 60 days delinquent. The ratio becomes even higher for those with negative equity in their homes; for those who owe 30 percent more than their home is worth, the rate approaches 70 percent.

In fact, the Amherst Securities data shows that prime borrowers are less likely to resolve mortgage delinquencies as negative equity increases. In fact, for those owing 40 percent more than their home values, prime borrowers in default had the lowest "cure rate of all borrowers.

Ironically, subprime borrowers proved the most likely to become current on their loans once again after missing a mortgage payment among all underwater borrowers. In fact, 60-day default rates for subprime borrowers already in default ran roughly 10 percentage points lower than prime borrowers for all borrowers in negative equity, a ratio that held steady regardless of how far "underwater" they were.