Underwater mortgages declined in 2nd-quarter
LOS ANGELES (AP) — The number of Americans who owe more on their mortgages than their homes are worth declined in the second quarter, reflecting a pickup in U.S. home prices and declining sales of bank-owned homes.
All told, homes with so-called underwater mortgages made up 10.8 million properties — about 22 percent of all U.S. homes with a mortgage, CoreLogic said Wednesday.
That's down from 11.4 million properties, or 23.7 percent of all homes with mortgages, at the end of the first quarter, the firm said.
In a healthy housing market, underwater mortgages historically account for about 5 percent of all homes with a mortgage.
So far this year, roughly 1.3 million borrowers have ceased to owe more on their mortgages than their homes are worth, the firm said.
Even so, 2.3 million homeowners had less than 5 percent equity in their home at the close of the second quarter. Those borrowers are considered particularly at risk for ending up underwater on their mortgage, should home values decline.
When a mortgage is underwater, the homeowner often can't qualify for mortgage refinancing and has little recourse but to continue making payments in hopes the property eventually regains its value.
Nearly 85 percent of borrowers with underwater mortgages in the second quarter hadn't stopped making their mortgage payments, CoreLogic said.
Underwater mortgages also dampen home sales. Homeowners who might otherwise sell their home refuse to take a loss or can't get the bank to agree to a short sale — when a lender lets a borrower sell their property for less than the amount owed on the mortgage.
Underwater mortgages typically rise when home prices fall, and vice versa.
Low mortgage interest rates have helped drive home sales higher this year, fueling price increases.
Sales of previously occupied homes jumped 10 percent in July from a year earlier. Sales of newly built homes, meanwhile, were up 25 percent in the same period. And the Standard & Poor's/Case Shiller index for July showed the first year-over-year increase in home prices since September 2010.
A decline in the number of foreclosed homes available for sale in some markets also has fueled bidding wars, helping to prop up home values.
Sales of bank-owned homes and those already on the foreclosure path are down, because banks are taking a measured approach to placing homes on the market. As of July, only about 15 percent of the 620,751 homes in lenders' possession were listed for sale, according to RealtyTrac Inc.
Still, the number of homes entering the foreclosure process has been rising in recent months. Those properties, should they end up foreclosed, could eventually hit the market and potentially be a drag on the values of nearby homes.
At the state level, Nevada had the highest share of underwater mortgages in the nation at 59 percent of all homes with a mortgage, CoreLogic said.
Rounding out the top five states with the highest percentage of underwater mortgages was Florida (43 percent), Arizona (40 percent), Georgia (36 percent) and Michigan (33 percent).