Nearly one-third of all mortgages underwater – and that’s the good news

STOCKTON
August 14, 2009 12:03am

The housing collapse in the Stockton area of the Central Valley is so profound that 66.56 percent of home mortgages are underwater – the term used when home value is less than the outstanding mortgage.

Nationally, more than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, according to newly released data from First American CoreLogic.

June's negative equity share was slightly lower than the 32.5 percent as of the end of March 2009 and it reflects the recent flattening of monthly home price changes. As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity.

Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.

In Stockton, 87,916, or 66.56 percent of all properties with a mortgage, are in negative equity. A total of 92,057 mortgages, or 69.69 percent, are in near negative equity or negative equity.

The aggregate property value for loans in a negative equity position nationwide was $3.4 trillion, which represents the total property value at risk of default.

In California, the aggregate value of homes that are in negative equity was $969 billion, followed by Florida ($432 billion), New Jersey ($146 billion), Illinois ($146 billion) and Arizona ($140 billion).

Los Angeles had over $310 billion aggregate property value that was in a negative equity position, followed by New York ($183 billion), Miami ($152 billion), Washington, D.C. ($149 billion) and Chicago ($134 billion).

In Stockton, $17,657,052,032 total property value was at risk of default.

Negative equity, often referred to as "underwater" or "upside down," means the borrower owes more on their mortgage than the home is worth. Near negative equity is when mortgages are within 5 percent of being in a negative equity position. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

The distribution of negative equity is heavily skewed to a small number of states as three states account for roughly half of all mortgage borrowers in a negative equity position. Nevada (66 percent) had the highest percentage where nearly two-thirds of mortgage borrowers had negative equity. In Arizona (51 percent) and Florida (49 percent) half of all mortgage borrowers had negative equity. Michigan (48 percent) and California (42 percent) round out the top five states.

The top five states' negative equity share was 47 percent, compared to 25 percent for the remaining states. In numerical terms, California (2.9 million) and Florida (2.3 million) had the largest number of negative equity mortgages, accounting for 5.2 million or 35 percent of all negative equity loans. Ohio (862,000), Texas (777,000) and Arizona (706,000) were also among the top five ranked states for the number of loans with negative equity.

"Negative equity continues to be the dominant driver of the mortgage market because it leads to foreclosures in the event a borrower experiences some kind of economic shock: job loss, illness or other adverse situation,” says Mark Fleming, chief economist for First American CoreLogic.

“Given that negative equity did not increase this quarter and home price declines are moderating or flattening, it may indicate we are at the peak of the negative equity cycle. However, until negative equity recedes and unemployment declines, mortgage risk will continue to be very elevated," he says.

Comments on this story

Al Dehr 8/14/09 12:54 PM
Common sense tells me that if everyone who is underwater simply "quit claimed" their homes and gave them back to the banks/mortgage holders in toto, the financial community, who caused all of this to start with, would have little recourse against anything/anyone. If the banks, stock brokers, insurance companies and corporations can get bailed out with taxpayers money, it is about time the taxpayers got their's back by "just walking away". Millions of people walking away would shut all of the turkeys down who continue to try to reap uncalled for profits/money from me, my children, my grand children, etc. for the next 200 years. HOW ABOUT IT AMERICA!!! Let's start a true financial revolution in this country and start all over again without the powers that be that have betrayed us so greatly.

scm 8/14/09 1:38 PM
Actually Al Dehr, I have all 30-year fixed interest rates. I am not under water and I am building equity every month. We can blame the banks but they do not sell real estate, they simply offer loans. People chose to take on very risky mortgages and many are now paying the price for that. I would prefer that people not just "walk away" but that they tough it out and figure out a way to keep making their mortgage payment. Because if millions of people walk away at once and the financial institutions truly collapse, that doesn't much help and instead wipes out all of us that didn't take on bad loans and have assets worth preserving.

Al Dehr 8/14/09 2:52 PM
"scm" I, too, have 30-year mortgages, however, I do not consider my home an asset to be considered like an investment. I can well afford to continue what is left of my payments and am in no danger of losing equity that would cause me to go underwater. My home is my home, and is a place to live and raise my family. Whatever, appreciation in value is earned in the long run will pass on to my heirs. FOR THOSE WHO ARE UNDERWATER THROUGH NO FAULT OF THEIR OWN (i.e. just taking advantage of the risky world of real estate investment for the sake of money) it makes no sense to continue to put good money into a hopeless situation. All you will do is hurt yourself further in the long run. When you have 2/3 of your value gone because of the greed of the aforementioned system, cut your losses and run. Find a good place to put your good dollars, and let the turkeys fail. There are millions of people out there in this kind of a situation. It is about time they lived up to our forefathers common sense heritage and went back to the gold standard.

jules 8/17/09 8:43 AM
scm - I also have a 30-year fixed mortgage. We bought in the central valley in 2002, and probably paid a reasonable price considering the ratios or average income, home prices, and rental rates. However, we had to move for job reasons and are stuck renting out our house because we are severely underwater. I blame the banks for the housing mess in the central valley. Banks like Countrywide underwrote loans to borrowers with 100%+ LTV and/or no income verficiation AFTER we bought. It helped cause a huge bubble that has overdeflated. And now responsible homeowners like us can't sell if they need to.