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“Sand States” are Still the Wettest

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By Steve Cook

Some 10.7 million homeowners, or 22 percent of all residential properties with a mortgage, were in negative equity at the end of the third quarter of 2012, down by 100,000 from the second quarter. But the “sand states,” the states that dominated foreclosures for years, still account for a lion’s share of underwater borrowers.

With the addition of 100,000 borrowers, the total number of borrowers who moved from negative equity to positive equity by September reached 1.4 million year-to-date. An additional 2.3 million borrowers had less than 5 percent equity in their home, referred to as near-negative equity, at the end of the third quarter, according to a new analysis from CoreLogic.

Together, negative equity and near-negative equity mortgages accounted for 26.8 percent of all residential properties with a mortgage nationwide in the third quarter of 2012, down from 27 percent at the end of the second quarter in 2012. Nationally, negative equity decreased from $689 billion at the end of the second quarter in 2012 to $658 billion at the end of the third quarter, a decrease of $31 billion. This decrease was driven in large part by an improvement in house price levels. This dollar amount represents the total value of all homes currently underwater nationally.

Rising home values also pushed the equity Americans have in their homes higher than at it was at the onset of the housing crash five years ago, according to the December HUD Scorecard. Homeowners’ equity reached $7714.3 billion, a 5.2 percent increase over the second quarter and an 18 percent increase over the level of $6526.9 in the third quarter of 20011. In 2007, homeowners’ equity reached $1.02 trillion, but fell to $7050.9 billion in 2008, according to the quarterly Federal Reserve’s Flow of Funds report.

Negative equity has been a major cause of foreclosures and short sales. Even three years after the height of the foreclosure flood in 2010, a handful of states that were reasonable then for the majority of the foreclosures are the same states that today are home to an overabundance of underwater homes.

Nevada had the highest percentage of mortgaged properties in negative equity at 56.9 percent, followed by Florida (42.1 percent), Arizona (38.6 percent), Georgia (35.6 percent) and Michigan (32 percent). These top five states combined account for 34 percent of the total amount of negative equity in the U.S.

Of the total $658 billion in aggregate negative equity, first liens without home equity loans accounted for $323 billion aggregate negative equity, while first liens with home equity loans accounted for $334 billion.

Third quarter highlights included:

• 6.6 million upside-down borrowers hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $214,000. The average underwater amount is $49,000.

• 4.1 million upside-down borrowers possess both first and second liens. The average mortgage balance for this group of borrowers is $298,000.The average underwater amount is $82,000.

• Approximately 41 percent of borrowers with first liens without home equity loans had loan-to-value (LTV) ratios of 80 percent or higher and approximately 61 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.

• At the end of the third quarter 2012, 17.1 million borrowers possessed qualifying LTVs between 80 and 125 percent for the Home Affordable Refinance Program (HARP) under the original requirements first introduced in March 2009. The lifting of the 125 percent LTV cap via HARP 2.0 opens the door to another 4.6 million borrowers.

For more information, visit www.realestateeconomywatch.com.

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