Portion Of US Home Loans Underwater Down Slightly In 2Q-Report

A slowing in the pace of home-price declines helped bring down the portion of home loans with negative equity - the situation where borrowers owe more on their mortgage than their home is worth - according to data from First American CoreLogic.

More than 15.2 million U.S. mortgages, or 32.2% of all mortgaged properties, were in a negative-equity position on June 30, edging down from 32.5% at the end of March, according to the real-estate information company, which tracks data on about 90% of mortgage loans nationwide.

The aggregate property value for loans in a negative-equity position was $3.4 trillion, according to the report.

Negative equity can occur because of a decline in property value, an increase in mortgage debt or a combination of both. Equity levels are important to people who can't make their mortgage payment since it affects their ability to sell or refinance, said Mark Fleming, chief economist for First American CoreLogic.

The slight drop in the portion of underwater loans reflects the recent flattening of home price changes, which is "great news" for the housing market as negative equity has been increasing for a number of periods, Fleming said.

Still, he stressed that this decrease is a quarterly comparison, not the yearly comparison typically used in house prices.

Negative equity is a strong driver of foreclosures, Fleming said, and the stunted growth rate in the second quarter is a positive sign that foreclosures may moderate in the future. First American CoreLogic made "very crude" estimates that the foreclosure rate will peak a bit higher than 4% in early 2010, he said.

Geographic Concentration


Distribution of negative equity is heavily skewed geographically. Just three states - Nevada, Arizona and Florida - account for about half of all mortgage borrowers in a negative-equity position, according to the company's data. Michigan and California round out the top five states.

In Nevada, 66% of the state's mortgages are underwater; in Arizona, the portion underwater is 51%; in Florida, 49%; Michigan, 48%; and California, 42%.

Nationwide, the total property value for loans in a negative-equity position was $3.4 trillion. California led states with $969 billion, followed by Florida with $432 billion, New Jersey and Illinois each with $146 billion and Arizona with $140 billion.

Looked at by city, Los Angeles topped the list with more than $310 billion of total property value underwater, followed by New York with $183 billion, Miami with $152 billion, Washington with $149 billion and Chicago with $134 billion, according to First American CoreLogic.

It's Not Over Yet


Though the decrease of negative equity is good news, it's by no means an end to the housing market's problems, Fleming said.

Fleming said it's possible that overall affordability, government programs and the stimulus helped people jump off the sidelines into the housing market in recent months. He added that price declines might reappear in the fall and winter based on the housing market's seasonal cycle.

The current data may help bolster consumer confidence, he added, because of the psychologically driven nature of the U.S. economy.

"As long as the economy continues to pull itself out of the doldrums," Fleming said, people "will be much more likely to [buy] again next spring."

Mortgage loan delinquency is slowing: TransUnion

Many Americans are still struggling to make payments on their home loans, but the pace of the problem is slowing, according to new data.

TransUnion.com says that the proportion of homeowners who are 60 or more days late paying their home loan rose during the second quarter to reach 5.81 percent. In the first quarter, 5.22 percent of borrowers were late.

This is the 10th quarter in a row that delinquency rates have increased, and the new figure is an all-time high, the report states.

However, there is a silver lining to the findings. Although delinquency continues to go up, the rate of increase has decelerated - which could mean market stabilization is just around the corner, TransUnion said.

"For the first time since the recession began at the end of 2007, the quarter-to-quarter growth rate for national mortgage delinquency shows a decrease," explained FJ Guarrera, vice president of TransUnion's financial services division.

He said the new finding adds to "several complementary economic statistics at the national level" that potentially point to an end to the recession.

"This is particularly noteworthy, in that delinquency statistics are generally lagging indicators of the economic environment," Guarrera said.

Mortgage loan delinquency has jumped 65 percent year-on-year, according to the data. Nevada and Florida were the states with highest rates in the second quarter, at 13.8 percent and 12.3 percent respectively.

As delinquency rates continue to creep up, some troubled borrowers have been opting to apply for home loan modifications.

However, while modifying a home loan can significantly lower your monthly payments, some consumer advocates are warning that it can also leave a black mark on your credit score.

"You have to make a decision, because modifying your loan is going to hit your credit," consumer credit expert John Ulzheimer told the Sun-Sentinel.

Lenders can report a modification to credit bureaus as a "partial payment," which may stay on your credit report for seven years, he said.

Super-cheap home loans

TWO foreign banks operating in Singapore have just unveiled rock-bottom home loan deals in a bid to secure a bigger slice of the fast-growing mortgage market amid record private home sales.

Market observers say it is too soon to say if a full-blown mortgage rates war will erupt - but the latest rates are sure to get the attention of home hunters.

One key factor allowing super-cheap mortgages is the fact that a key interbank rate, which influences consumer loan and deposit rates, is tipped to stay at depressed levels well into next year.

The rate - the three-month Singapore interbank offered rate (Sibor) - is hovering at 0.68 per cent, near the all-time low of 0.56 per cent back in June 2003.

With such cheap funds on hand, HSBC has just launched a mortgage package with an interest rate of Sibor plus 1 per cent throughout the loan term.

This is a steal, compared with its Sibor-pegged loyalty package, with interest rates of Sibor plus 1.3 per cent in the first year, Sibor plus 1.2 per cent in the second, and Sibor plus 1.1 per cent after that.

Customers can save about 7 per cent in interest payments for a loan of $600,000 over 20 years, the bank said.

The package, available until Sept 30, is for both completed and uncompleted homes with a minimum loan size of $300,000.

It has no lock-in period and is for existing customers. Non-HSBC customers who want to get on the scheme must park at least $50,000 with the bank.

The other new cheap deal is from a small player, State Bank of India (SBI) Singapore. It is offering a jaw-dropping Sibor plus 0.6 per cent for the first year, Sibor plus 0.8 per cent for the second and Sibor plus 1 per cent for the third. The package is for completed properties only, and not for buildings under construction.