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Summary of Second Quarter 2009 Negative Equity Data from First American CoreLogic
August 13, 2009
NEW DATA SHOWS NEARLY ONE-THIRD OF ALL MORTGAGES UNDERWATER
More than $3 Trillion Worth of Property at Risk of Default
"Negative equity continues to be the dominant driver of the mortgage market because it leads to foreclosures in the event a borrower experiences some kind of economic shock such as a job loss, illness or other adverse situation. 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. However, until negative equity recedes and unemployment declines, mortgage risk will continue to be very elevated," said Mark Fleming, chief economist for First American CoreLogic.
First American CoreLogic has created state- and CBSA-level negative equity estimates for all single-family residential properties in the U.S. The data includes 47 million properties with a mortgage, which accounts for over 90 percent of all mortgages in the U.S.*. The data was revised for 2009 and the revisions included a large addition of junior liens (including multiple junior liens), additional residential property types that were previously excluded and a broader range of home values. The net impact of the revisions was a large increase in negative equity.
First American CoreLogic used its public record data as the source of the mortgage debt outstanding (MDO) and it includes 1st mortgage liens and junior mortgage liens in order to capture the true level of mortgage debt outstanding for each property. The current value was estimated by using the First American CoreLogic Automated Valuation Models (AVM) for every residential property in the U.S. The data was filtered to include only properties valued between $30,000 and $30 million because AVM accuracy tends to quickly worsen outside of that value range.
The amount of equity for each property was determined by subtracting the property's estimated current value from the mortgage debt outstanding. If the mortgage debt was greater than the estimated value, then the property is in a negative equity position. The data was created at the zip code level and aggregated to the state, CBSA and U.S. totals.
*Note: Only data for mortgaged residential properties that have an AVM value is presented. There are several states where the public record, AVM or mortgage coverage is very thin. Although coverage is thin, these states account for fewer than five percent of the total population of the U.S. The mortgage debt outstanding was not adjusted for amortization, however the majority of mortgages were originated within the last six years where the difference between the original mortgage debt outstanding and current mortgage debt outstanding is not large.