More and more homeowners are finding themselves underwater on their mortgage loans. According to mortgage data firm CoreLogic, during the fourth quarter of 2011, 11.1 million homeowners owed more on their loans than their homes were worth, up 22.1 percent from 10.7 million in the third quarter. That is the highest level since the company started tracking in the third quarter of 2009.
The current figure represents 22.8 percent of all mortgages across the country, almost one of out every four homes. There are another 2.5 million borrowers that are considered to have “near-negative equity” as they have less than five percent equity, so taken together, negative equity and near-negative equity borrowers made up 27.8 percent of all homeowners. It is estimated that homeowners are now have $715 billion in negative equity.
“The high level of negative equity and the inability to pay is the ‘double trigger’ of default, and the reason we have such a significant foreclosure pipeline,” Mark Fleming, chief economist at CoreLogic, said in a statement as quoted in a Reuters article.
Such a large percentage of underwater borrowers poses a problem for the housing market as it often leads homeowners to default on their loans even when they can afford it, adding to the flooded foreclosure supply.
Additionally, these homeowners are typically unable to move as they are unable to sell their homes for the price of the mortgage. That is keeping a significant portion of the population stuck where they are, unable to move for job opportunities or trade-up for a different home. The housing market is not likely to see true growth until the problem is resolved.
Fleming commented, “while the economic recovery will reduce the propensity of the inability-to-pay trigger, negative equity will take an extended period of time to improve, and if there is a hiccup in the economic recovery, it could mean a rise in foreclosures.”