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Robert Trigaux

What happens when half of area homeowners with mortgages are underwater?



Underwaterhomesap Wake up and good morning. New numbers are out showing the astonishing percentage of Florida mortgages (and elsewhere) that are financially underwater. Consider Tampa Bay: First American CoreLogic's analysis shows 50.6 percent of Tampa Bay residential mortgages, worth $59.3 billion, were underwater -- mortgages bigger than the declining value of their homes -- as of June 30. That comes to about 351,980 mortgage holders out of roughly 700,000 in the region. More details here. (AP photo.)

What are the implications of an entire metro area where half of homeowners with mortgages are stuck with home loans bigger than their houses are worth? They can't move without taking a loss, perhaps a big loss. They're surely less motivated to spend, given the overhang of debt on their homes. The pace of commerce inevitably slows. Tax revenues dwindle.

Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both. Statewide, Florida's aggregate value of homes that are in negative equity was $432 billion.

Is there such as thing as UMD -- Underwater Mortgage Depression? (Of course it does not help that stock portfolios and retirement accounts are much the same, sorely depressed, at the same time.)

Here are some highlights from First American CoreLogic's just released report on negative equity in the country. You can look at it yourself here (but you have to sign in). Here we go:

* More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30. June’s negative equity share was slightly lower than the 32.5 percent as of the end of March 2009 and it reflects the recent flattening of monthly home price changes.

* As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity (meaning within 5 percent or less of reaching negative equity). Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.

* The aggregate property value for loans in a negative equity position was $3.4 trillion, which represents the total property value at risk of default. In California, the aggregate value of homes that are in negative equity was $969 billion, followed by Florida ($432 billion), New Jersey ($146 billion), Illinois ($146 billion) and Arizona ($140

* Los Angeles had over $310 billion in aggregate property value in a negative equity position, followed by New York ($183 billion), Miami ($152 billion), Washington, DC ($149 billion) and Chicago ($134 billion).

*  The distribution of negative equity is heavily skewed to a small number of states as three states account for roughly half of all mortgage borrowers in a negative equity position. Nevada (66 percent) had the highest percentage with nearly two?thirds of mortgage borrowers in a negative equity position. In Arizona (51 percent) and Florida (49 percent), half of all mortgage borrowers were in a negative equity position. Michigan (48 percent) and California (42 percent) round out the top five states.

* The top five states’ negative equity share was 47 percent, compared to 25 percent for the remaining states. In numerical terms, California (2.9 million) and Florida (2.3 million) had the largest number of negative equity mortgages, accounting for 5.2 million or 35 percent of all negative equity loans.

* Is there a silver lining of sorts? "Given that negative equity did not increase this quarter and home prices declines are moderating or flattening, we may be at the peak of the negative equity cycle," says Mark Fleming, chief economist for First American CoreLogic. "However, until negative equity recedes and unemployment declines, mortgage risk will continue to be very elevated."

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 11:25am]


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