The numbers are down very slightly from 22.7% in the first quarter of the year. But, an additional 2.4 million borrowers had less than 5% equity, referred to as near negative equity, in the second quarter.
Together, negative equity and near negative equity mortgages accounted for 27.5% of all residential properties with a mortgage nationwide. The new report also shows that nearly three quarters of home owners in negative equity situations are also paying higher, above market interest on their mortgages.
Negative equity, often referred to as underwater or upside down, means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
Nevada had the highest negative equity with 60% of all of its mortgaged properties underwater, followed by Arizona at 49%, Florida at 45%, Michigan at 36%, and California at 30%.
However, the negative equity share in the hardest hit states has improved. Over the past year, the average negative equity share for the top five states has declined from 41% to 38%. Nevada had the largest decline over the last year, with the negative equity share dropping from 68% to 60%. The reason for the Nevada decline is the high number of foreclosures that led to lower numbers of remaining negative equity borrowers, Core Logic said.
Negative equity significantly limits the ability of borrowers to capture the benefit of the low rate environment. There are nearly 28 million outstanding mortgages that have above market rates and are in theory refinanceable. Twenty million borrowers with positive equity, or 53% of all above-water borrowers, have above market rates, the data also shows.
Eight million borrowers with negative equity, or nearly 75% of all underwater borrowers, have above market rates. The disparity is even greater for those with severe negative equity. More than 40% of borrowers with 125% or higher loan to value (LTV) ratios have mortgages with rates at 6% or above, compared to only 17% for borrowers with positive equity.
Negative equity not only restricts refinancing, but also sales. Since the 2005 sales peak, non distressed sales in zip codes with low negative equity have fallen 61% compared to an 83% sales decline in high negative equity zip codes.
The typical seasonal changes in sales volume in high negative equity zip codes is very muted, which indicates that non distressed sales are being heavily impacted by the high levels of negative equity in their neighborhood, even if sellers have equity.
‘High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery. The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices,’ said Mark Fleming, chief economist with CoreLogic.
