Due to the ongoing fall in home prices across the country and
the slower foreclosure activities during late 2011, the number of
homeowners who are underwater is continuously rising. Last week,a
data released by
CoreLogic Inc.
(
CLGX
), a leading provider of information, analytics and business
services, shows that underwater mortgages or negative equity rose
to its highest level since 2009, when the company started tracking
the data.
According to CoreLogic report, nearly 22.8% or 11.1 million of
the entire mortgage residential properties in the U.S. were
underwater in the October-December quarter, up from 22.1% or 10.7
million in the prior quarter. Additionally, about 2.5 million
borrowers' home value was merely 5% more than the loan value (close
to underwater).
The total value of underwater mortgages was $717 billion in the
fourth quarter of 2011. Out of this, nearly $342 billion was
related to first liens without home equity loans, while first liens
with home equity loans accounted for $375 billion. CoreLogic used
the data related to 48 million properties with a mortgage (85% of
all mortgages in the U.S.) as the base.
Further, as per CoreLogic's report, Nevada had the highest rate
of underwater mortgage, which is nearly 61%. This was followed by
Arizona with 48% mortgaged homes underwater, Florida with 44%,
Michigan with 35% and Georgia with 33%. Together, these five states
had an average negative equity share of 44.3%. The remaining 45
states had a combined average underwater mortgage share of
15.3%.
Underwater mortgage mainly occurs as a result of a fall in the
value of the property, non-payment or restructuring of debt to
avoid foreclosure and negative amortization of mortgages or a
combination of these. Additionally, when a mortgage is underwater,
the homeowner cannot refinance the loan and has almost no
alternative but to continue making payments with a hope that the
property will regain its original value.
Moreover, underwater mortgage slows down home sales. As of now,
the homeowners, who would have otherwise sold their houses, will
have to wait for the home prices to rise before they decide on
selling these. Also, at times the mortgage providers do not allow
the borrowers to sell their property at lower price than owed on
the mortgage.
However, there are signs that the foreclosure activities would
increase in the upcoming months. Last month, a $25 billion
settlement deal took place among 49 states' attorneys general, the
regulators and five mortgage servicers -
JPMorgan Chase & Co.
(
JPM
),
Bank of America Corporation
(
BAC
),
Citigroup Inc.
(
C
), Ally Financial Inc. and
Wells Fargo & Company
(
WFC
). The deal is expected to speed up the rate of the foreclosure
activities, which was almost frozen till now. Hence, this will help
to bring down underwater mortgages.
We believe that until underwater mortgages decline and
foreclosure pipeline clears, the recovery in the housing and
mortgage markets will remain very slow.
BANK OF AMER CP (
BAC
): Free Stock Analysis Report
CITIGROUP INC (
C
): Free Stock Analysis Report
CORELOGIC INC (
CLGX
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
WELLS FARGO-NEW (
WFC
): Free Stock Analysis Report
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