Borrowers Resurfacing from Mortgage 'Underwater' Status Slows as Price Gains Ease

Borrowers Resurfacing from Mortgage 'Underwater' Status Slows as Price Gains EaseThe latest update on homeowners who owe more in mortgages than the value of their homes has both good news and bad news.
The good: The first quarter 2014 negative equity numbers were down to the lowest level since RealtyTrac began reporting on “underwater borrowers” two years ago.
They mostly represent the “seriously underwater” mortgages. RealtyTrac says that 9.1 million U.S. residential properties were seriously underwater — where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value — representing 17 percent of all properties with a mortgage in the first quarter.
In the fourth quarter of 2013, 9.3 million residential properties representing 19 percent of all properties with a mortgage were seriously underwater, and in the first quarter of 2013 10.9 million residential properties representing 26 percent of all properties with a mortgage were seriously underwater.
The recent peak in negative equity came in the second quarter of 2012, when 12.8 million U.S. residential properties representing 29 percent of all properties with a mortgage were seriously underwater.
Now here’s the bad news: the pace of resurfacing from negative equity is slowing as the pace of home price increases is easing.
Home Price Appreciation Slows
“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.”
Another 8.5 million properties were on the verge of resurfacing in the first quarter of this year, with between 10 percent negative equity and 10 percent positive equity. This segment represented 16 percent of all properties with a mortgage in the first quarter. That was compared to 8.3 million properties representing 17 percent of all properties with a mortgage in the fourth quarter of 2013.
Fewer distressed properties had negative equity in the first quarter, with 45 percent of all properties in the foreclosure process seriously underwater — down from 48 percent in the fourth quarter of 2013 and down from 58 percent in the first quarter of 2013.
Conversely, the share of foreclosures with positive equity increased to 35 percent in the first quarter, up from 31 percent in the fourth quarter and up from 24 percent in the third quarter of 2013.
“The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home,” Blomquist noted. “But many distressed homeowners with equity may not realize they have equity and in some cases have vacated the property already, assuming that foreclosure is inevitable.”
The universe of equity-rich properties — those with at least 50 percent equity — grew to 9.9 million representing 19 percent of all properties with a mortgage in the first quarter, up from 9.1 million representing 18 percent of all properties with a mortgage in the fourth quarter of 2013.

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