Negative Equity and Its Impact on Current Loans: Report
By: Esther Cho 09/10/2012
Eighteen percent of current loans remain underwater, according to Lender Processing Services’ (LPS) July Mortgage Monitor report. In states where the percent of current loans sitting underwater is extremely high, the percentage of new problem loans was also higher.
For example, the state with the highest share of new problem loans was Nevada, where 54.7 percent of current loans are underwater, followed by Florida (33.1 percent), Arizona (28.4 percent), and Georgia (42.8 percent).
LPS also examined the relationship between high loan-to-value ratios (LTV) and the likelihood of becoming a new problem loan. For loans that had an LTV greater than 150 percent, 4.4 percent went from being current to delinquent.
For loans with an LTV of 110-120 percent, 2.2 percent became new problem loans.
“As negative equity increases, we see corresponding increases in the number of new problem loans. In Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than three percent of borrowers who were up to date on their payments are 60 or more days delinquent six months later. This suggests that further home price declines – should they occur – could jeopardize recent improvements,” explained Herb Blecher, senior vice president of LPS Applied Analytics.
Overall, the delinquency rate for July was 7.03 percent, a yearly drop of 11 percent and a 30 percent decline from the January 2010 peak.
The percent of inventory in foreclosure stood at 4.08 percent and remained mostly unchanged both monthly (-0.2 percent) and yearly (-0.9 percent).
July saw about 186,000 foreclosure starts, down 10.5 percent yearly but up 7.1 percent monthly. There were about twice as many foreclosure starts as foreclosure sales or liquidations, which numbered about 93,000.
Foreclosure inventory in judicial states continued to be elevated at 6.46 percent compared to non-judicial states (2.38 percent). Also, foreclosure sales was much lower in judicial states, where 2.09 percent of foreclosure inventory went to sale compared to 6.71 percent in non-judicial states.