From: Lori Guyton []
Sent: Thursday, August 13, 2009 1:06 PM
To: Wasserman, Jim - Sacramento
Subject: Newly released negative equity data
First American CoreLogic

Contact: Lori Guyton (901) 277.6066

Summary of Second Quarter 2009 Negative Equity Data from First American CoreLogic

August 13, 2009


More than $3 Trillion Worth of Property at Risk of Default

  • 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, 2009 according to newly released data from First American CoreLogic. 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. 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 billion). 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).
  • Negative equity, often referred to as "underwater" or "upside down," means the borrower owes more on their mortgage than the home is worth. Near negative equity is when mortgages are within five percent of being in a negative equity position. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.
  • 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. Ohio (862,000), Texas (777,000) and Arizona (706,000) were also ranked among the top five states with the highest number of negative equity loans.

"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.

Negative Equity by State, June 2009
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Figure 1: Distribution of Homeowner Equity

Figure 2: Negative Equity of 25% or More

Figure 3: Aggregate Property Value of Homes in Negative Equity