23.7% of U.S. Mortgages in Negative Equity in Q1; Down From 25.2% in Q4 From Rising Home Prices

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According to CoreLogic, 11.4 million, or 23.7 percent of all U.S. residential properties with a mortgage were in negative equity at the end of the first quarter of 2012.

The good news here is this Q1-2012 number came down from a reported 12.1 million properties, or 25.2 percent in Q4 of 2011. An additional 2.3 million borrowers had less than 5 percent equity, referred to as near-negative equity, in the first quarter.

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.

Together, negative equity and near-negative equity mortgages accounted for 28.5 percent of all residential properties with a mortgage nationwide in the first quarter, down from 30.1 percent in Q4 2011. More than 700,000 households regained a positive equity position in the Q1 2012. Nationally, negative equity decreased from $742 billion in Q4 2011 to $691 billion in the first quarter, a fall of $51 billion in large part due to an improvement in house price levels.

Key findings include:

• Nevada had the highest negative equity percentage with 61 percent of all mortgaged properties underwater, followed by Florida (45 percent), Arizona (43 percent), Georgia (37 percent) and Michigan (35 percent). These top five states combined have an average negative equity share of 44.5 percent, while the remaining states have a combined average negative equity share of 15.9 percent.

• Of the 11.4 million upside-down borrowers, there are 6.9 million first liens without home equity loans. This group of borrowers has an average mortgage balance of $212,000 and is underwater by an average of $47,000. For all first-lien-only borrowers, the negative equity share was 19 percent while 42 percent of all first-lien-only borrowers had a loan to value (LTV) ratio of 80 percent or higher.

• The remaining 4.5 million upside-down borrowers had both first and second liens. The average mortgage balance for this group was $299,000, and they were upside-down by an average of $82,000. The negative equity share for all first-lien borrowers with home equity loans was 39 percent, more than twice the share for all first-lien-only borrowers. More than 60 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.

"In the first quarter of 2012, rebounding home prices, a healthier balance of real estate supply and demand, and a slowing share of distressed sales activity helped to reduce the negative equity share," said Mark Fleming, chief economist for CoreLogic. "This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest hit markets. While the overall stagnating economic recovery will likely slow housing market recovery in the second half of this year, reducing the number of underwater households is an important step toward reducing future mortgage default risk."

"We are encouraged by the positive trend of increasing housing prices and falling negative equity share in key states like Arizona, Nevada and Tennessee," said Anand Nallathambi, president and CEO of CoreLogic. "Although it will still be a slow recovery for U.S. homeowners, we see this improvement as a stabilizing and positive development for the mortgage industry."