TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/442484
42 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING The laTesT despite Progress, little Help for Underwater Borrowers Latest study finds 4 million homeowners still in negative equity positions. t he share of underwater mortgages as a percentage of all mortgages in the United States has fallen below 8 percent, yet about 4 million borrowers are still underwater, according to Black Knight Financial Services' October 2014 Mortgage Monitor. Those 4 million underwa- ter homeowners combined for about $157 billion in negative equity in October, according to Black Knight. That averages out to slightly more than $39,000 in negative equity per home. Underwater homeowners also combined for approximately $800 billion in unpaid balances. "Over the past two-and-a-half years, there has been sustained and continual improvement in the number of underwater borrowers in this country," said Trey Barnes, Black Knight's SVP of loan data products. "From 33.5 percent of borrowers being in negative equity positions in January 2012, we're now looking at less than 8 percent of borrow- ers underwater." However, despite more than two years of relatively steady home price appreciation, that leaves 4 million borrowers who owe more on their mortgages than their homes are worth, and Barnes says the data shows these borrowers are 10 times more likely to be delinquent than those with positive equity." Black Knight found in its study that more than three-quar- ters (77 percent) of loans with combined loan-to-value (CLTV) ratios of 150 percent or greater were delinquent in October, representing about 1.2 percent of active mortgages. Approximately 1.3 million GSE-backed mortgages were underwater during that same month, according to Black Knight, representing a combined $39 billion in negative equity or an average of about $30,000 per borrower. Of these, about 365,000 were delinquent. "There is understandably a great deal of debate around the issue of principal reductions for these delinquent borrowers," Barnes said. "With an aggre- gate 40-percent delinquency rate among borrowers with current combined loan-to-value ratios above 100 percent—a number that rises to over three out of every four for severely underwater bor- rowers (those with CLTVs of 150 percent or higher)—the scope and cost of such write-downs would be immense. Some $89 billion in principal reductions would be required to 'right-side' these bor- rowers. For the 365,000 delin- quent underwater loans backed by Fannie Mae and Freddie Mac alone, nearly $18 billion in write- downs would be called for."