Underwater Mortgages Keep Falling

Aaron Crowe
Written by
Aaron Crowe
Read Time: 2 minutes

The number of homeowners with underwater mortgages continued to shrink in the fourth quarter of last year, although at a modest pace.

Rising home values brought 200,000 formerly underwater homes into positive equity in the last quarter of 2012, according to figures released today by the property information and analytics firm CoreLogic. That's a small slice of the 1.7 million homes that returned to positive equity in 2012, the majority of them in the first three months of the year.

1 in 5 still underwater

According to CoreLogic figures, just over one in five mortgaged U.S. homes remained in negative equity as of the fourth quarter of 2012, or 10.4 million out of 48.5 million homes. Another 2.3 million homeowners were in near-negative equity, with less than 5 percent positive equity.

"The scourge of negative equity continues to recede across the country," said Anand Nallathambi, president and CEO of CoreLogic. "There is certainly more to do but with fewer borrowers underwater, the fundamentals underpinning the housing market will continue to strengthen. The trend toward more homeowners moving back into positive equity territory should continue in 2013."

Homeowners have been moving back into positive equity at a fairly consistent pace through the latter part of 2012. Roughly 200,000 returned to positive equity in each of the last three quarters of the year, following a sharp improvement during the first quarter of the year.

Many still face challenges refinancing

Of the 38.1 million in positive equity as of the fourth quarter of 2012, 11.3 million were described as "under-equitied," with less than 20 percent home equity. Such borrowers would likely have greater difficulty and higher costs in refinancing a mortgage compared to those with higher equity.

Overall, U.S. homes with a mortgage had average equity of 31 percent of home value during the fourth quarter of 2012.

Five states accounted for one-third of the negative equity in the U.S., led by Nevada, where 52.4 percent of mortgage borrowers were underwater. The other four states were Florida, at 40.2 percent; Arizona, 34.9 percent; Georgia, 33.8 percent and Michigan, 31.9 percent.

Among underwater mortgage borrowers, 6.5 million had a first lien only, while 3.9 million had both a first and second lien, such as a home equity loan or piggyback mortgage.

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