Negative Home Equity Making a Big Impact

 

Estimated Number and Percentage of Nonprime Borrowers with Negative Home Equity from March 31, 2006, through December 31, 2009. Article: The decline of home prices in many parts of the country has left millions of homeowners with negative home equity, meaning that their outstanding mortgage balances exceed the current value of their homes. A substantial proportion of borrowers with active nonprime mortgages (including subprime and Alt-A loans) had negative equity in their homes as of June 30, 2009.
Courtesy of Government Accountability Office

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For example, among the 16 metropolitan areas examined, it was estimated that the percentage of nonprime borrowers with negative equity ranged from about 9 percent (Denver) to more than 90 percent (Las Vegas). Research indicates that negative home equity substantially increases the risk of mortgage delinquency, making it an important dimension of ongoing problems in the nonprime market. 

For the period January 2001 through July 2007 the CoreLogic database contains information covering, in dollar terms, an estimated 87 percent of securitized subprime loans and 98 percent of securitized Alt-A loans. Researchers have found that nonprime mortgages that were not securitized (i.e., mortgages that lenders held in their portfolios) may have less risky characteristics and better performance histories than those that were securitized.

We focused our analysis on first-lien purchase and refinance mortgages for one-to-four-family residential units. Only loans that were active in a given quarter were included; loans that were inactive because they had been paid off or had completed the foreclosure process were excluded. 

The CoreLogic index, like other house price indexes, measures house price changes in a geographic area based on sales of the same properties at different points in time.

The use of repeat transactions on the same homes helps to control for differences in the quality of the houses in the data. The CoreLogic index is based on all usable transactions from CoreLogic’s public record, servicing, and securities databases of single family attached and detached homes with all types of financing, including prime and nonprime loans.

- Courtesy of Government Accountability Office