RealtyTrac’s Q1 2016 U.S. Home Equity and Underwater Report estimates that less than 1 percent of all seriously underwater properties nationwide potentially qualify for principal loan forgiveness under a new mortgage modification program introduced in April by the Federal Housing Finance Agency, which oversees government-backed loan agencies Fannie Mae and Freddie Mac.
For the analysis, RealtyTrac looked at publicly recorded mortgage and deed of trust data it collects and licenses along with eligibility criteria provided on the FHFA Fact Sheet for the new modification program, which loan servicers must offer to eligible borrowers by the end of the year. To be considered eligible in the RealtyTrac analysis, the seriously underwater properties (loan-to-value ratio of at least 125 percent) needed to also be actively in foreclosure, owner-occupied and have an estimated loan amount no more than $250,000 on a loan that is guaranteed by Fannie Mae or Freddie Mac.
Out of 6,703,857 million seriously underwater U.S. properties as of the end of Q1 2016, the RealtyTrac analysis estimated that 33,622 (0.50 percent) would potentially qualify for the FHFA principal reduction program.
“This new principal reduction program is designed to reach a highly targeted group of borrowers, so it’s not surprising that the share of seriously underwater borrowers who potentially qualify is razor-thin,” said Daren Blomquist, senior vice president at RealtyTrac. “To make a more serious dent in the 6.7 million seriously underwater loans, the program would need to be open to homeowners who are not seriously delinquent, given that 98 percent of all seriously underwater loans are not actively in the foreclosure process, or open to investors, given that non-owner-occupied properties account for 59 percent of all seriously underwater homes. But there may not be a strong fiscal or political case to help out those two categories of underwater homeowners, particularly in an election year.”
States and metro areas with the highest share of loans eligible for principal reduction
States with the highest share of seriously underwater homes potentially eligible for the FHFA Principal Reduction Modification program were New Jersey (2.56 percent); Illinois (1.07 percent); Florida (0.67 percent); Pennsylvania (0.64 percent); Ohio (0.60 percent); New York (0.60 percent); Massachusetts (0.58 percent); Nevada (0.54 percent); and Wisconsin (0.54 percent).
Among metropolitan statistical areas with a population of at least 500,000, those with the highest share of seriously underwater homes potentially eligible for the principal reduction program were Philadelphia (1.65 percent); Rochester, New York (1.22 percent); New York (1.20 percent); Springfield, Massachusetts (1.17 percent); and Chicago (1.14 percent).
Number of seriously underwater properties decreases 638,000 from a year ago
There were more than 6.7 million U.S. properties seriously underwater at the end of Q1 2016, which represented 12.0 percent of all properties with a mortgage, down from 7.3 million seriously underwater properties representing 13.2 percent of all properties with a mortgage in the first quarter of 2015 and down from a peak of 12.8 million seriously underwater properties representing 28.6 percent of all properties with a mortgage in Q2 2012.
“The pace at which the number of seriously underwater mortgages is dropping is certainly impressive while Seattle homeowners are seeing substantial improvement in their equity,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “As this trend continues to improve, it may well allow some homeowners to sell as they come out from being underwater. This is important in markets such as Seattle that are suffering from incredibly low inventory.”
States with the highest share of properties underwater were Nevada (22.6 percent), Illinois (22.3 percent), Ohio (20.8 percent), Florida (18.8 percent), and Michigan (17.7 percent).
Metropolitan statistical areas with the highest share of properties underwater were Cleveland (27.1 percent); Akron, Ohio (26.2 percent); Las Vegas (26.2 percent); Lakeland, Florida (23.8 percent); and Dayton, Ohio (23.7 percent).
“South Florida escalating property values continue to increase the equity for homeowners — with equity-rich homes increasing 18 percent from a year ago — and decrease the negative equity — with homes underwater down 17 percent from a year ago,” said Mike Pappas, president and CEO at The Keyes Company, covering South Florida. “Many properties are still recovering from the boom prices of 2005 and the subsequent precipitous drop in 2008.”
Metro areas with the lowest share of properties underwater were San Jose, California (1.8 percent); San Francisco (3.8 percent); Austin, Texas (4.0 percent); Portland, Oregon (4.1 percent); and Denver (4.3 percent).
Counter to the national trend, there were 35 out of 104 metro areas (34 percent) where the share of seriously underwater properties increased from a year ago, including New York (up 4 percent); Philadelphia (up 2 percent); Charlotte (up 17 percent); Cincinnati (up 4 percent); and Columbus, Ohio (up 18 percent).
Historical U.S. Underwater & Equity Rich Trends
| Qtr-Yr | Percent of U.S Properties with Loans Seriously Underwater | Percent of U.S. Properties with Loans Equity Rich |
| Q1 2012 | 27.8% | |
| Q2 2012 | 28.6% | |
| Q3 2012 | 27.6% | |
| Q1 2013 | 25.8% | |
| Q2 2013 | 25.7% | |
| Q3 2013 | 23.2% | |
| Q4 2013 | 18.8% | 18.5% |
| Q1 2014 | 17.5% | 19.1% |
| Q2 2014 | 17.2% | 18.9% |
| Q3 2014 | 15.0% | 20.1% |
| Q4 2014 | 12.7% | 20.3% |
| Q1 2015 | 13.2% | 19.8% |
| Q2 2015 | 13.3% | 19.6% |
| Q3 2015 | 12.7% | 19.2% |
| Q4 2015 | 11.5% | 22.5% |
| Q1 2016 | 12.0% | 22.0% |
Number of equity rich properties increases nearly 1.3 million from a year ago
More than 12.3 million (12,335,651) U.S. properties were equity-rich (LTV of 50 percent or less) as of the end of the first quarter of 2016, representing 22.0 percent of all properties with a mortgage. That was an increase of nearly 1.3 million from the 11,053,055 equity-rich properties representing 19.8 percent of all properties with a mortgage in the first quarter of 2015.
States with the highest share of equity-rich homeowners were Hawaii (36.9 percent), California (33.4 percent), Vermont (33.2 percent), New York (33.0 percent) and Maine (29.0 percent).
Metro areas with the highest share of equity-rich homeowners were San Jose, California (52.3 percent); San Francisco (46.6 percent); Honolulu (37.8 percent); Los Angeles (36.3 percent); and Portland (31.5 percent).
Metro areas with the biggest increase in share of equity-rich homeowners compared to a year ago were Dallas (up 46 percent); Austin, Texas (up 39 percent); Denver (up 37 percent); Albuquerque, New Mexico (up 37 percent); and Provo, Utah (up 37 percent).
Share of seriously underwater foreclosure properties drops to 29 percent
At the end of Q1 2016, 28.8 percent of all properties in foreclosure were seriously underwater, down from 35.1 percent a year ago.
“As equity has continued to increase during Q1 2016, we are experiencing a process of mortgage servicers calling mortgage notes in default in a much quicker fashion than what we have noticed in recent years,” said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. “Should homeowners find themselves in the unfortunate circumstance of falling behind in mortgage payments, they should immediately reach out to their local Realtor in determining options of taking advantage of this increased equity, as many homeowners are still under the perceptions of past home pricing from the previous economic decline. As homeowners’ equity position continues to improve, options for defaulted homeowners to avoid potential foreclosure equally improve.”
States with the highest share of properties in foreclosure that were seriously underwater were Illinois (47.3 percent), Nevada (43.6 percent), Rhode Island (40.9 percent), Maryland (40.4 percent) and New Jersey (39.8 percent).
| Qtr-Yr | Percent of Properties in Foreclosure Seriously Underwater | Percent of Properties in Foreclosure with Equity |
| Q1 2012 | 59.1% | |
| Q2 2012 | 62.0% | |
| Q3 2012 | 60.0% | |
| Q1 2013 | 58.2% | |
| Q2 2013 | 57.5% | |
| Q3 2013 | 56.3% | 23.7% |
| Q4 2013 | 47.5% | 30.6% |
| Q1 2014 | 45.0% | 35.2% |
| Q2 2014 | 43.6% | 34.1% |
| Q3 2014 | 38.9% | 38.5% |
| Q4 2014 | 34.6% | 42.3% |
| Q1 2015 | 35.1% | 42.1% |
| Q2 2015 | 34.4% | 42.4% |
| Q3 2015 | 33.4% | 43.3% |
| Q4 2015 | 28.4% | 49.7% |
| Q1 2016 | 28.8% | 49.4% |
Report methodology
The RealtyTrac U.S. Home Equity & Underwater report provides counts of residential properties based on several categories of equity — or loan to value (LTV) — at the state, metro and county level, along with the percentage of total residential properties with a mortgage that each equity category represents. The equity/LTV calculation is derived from a combination of record-level open loan data and record-level estimated property value data and is also matched against record-level foreclosure data to determine foreclosure status for each equity/LTV category.
Definitions
Seriously underwater: Loan to value ratio of 125 percent or above, meaning the homeowner owed at least 25 percent more than the estimated market value of the property.
Equity rich: Loan to value ratio of 50 percent or lower, meaning the homeowner had at least 50 percent equity.
Foreclosures w/equity: Properties in some stage of the foreclosure process (default or scheduled for auction, not including bank-owned) where the loan to value ratio was 100 percent or lower.
Q1 2016 Seriously Underwater Data by State
| State | Total Seriously Underwater (LTV 125+) | Pct Seriously Underwater | Year Ago Pct Seriously Underwater | YoY Pct Change |
| United States | 6,703,857 | 12.0% | 13.2% | -9% |
| Alabama | 41,990 | 11.7% | 11.9% | -2% |
| Alaska | 2,708 | 3.4% | 4.4% | -22% |
| Arizona | 244,155 | 13.3% | 15.4% | -14% |
| Arkansas | 28,749 | 12.5% | 10.9% | 14% |
| California | 611,563 | 7.5% | 9.2% | -18% |
| Colorado | 69,388 | 5.3% | 5.5% | -4% |
| Connecticut | 117,968 | 12.9% | ||
| Delaware | 28,880 | 13.4% | 14.3% | -6% |
| District of Columbia | 12,301 | 9.5% | 7.1% | 33% |
| Florida | 1,049,321 | 18.8% | 23.8% | -21% |
| Georgia | 228,130 | 14.5% | 17.3% | -16% |
| Hawaii | 16,018 | 5.9% | 5.6% | 5% |
| Idaho | 9,706 | 6.0% | 7.2% | -18% |
| Illinois | 595,620 | 22.3% | 23.8% | -6% |
| Indiana | 76,219 | 15.5% | 15.4% | 1% |
| Iowa | 23,224 | 8.4% | 7.7% | 8% |
| Kentucky | 22,757 | 8.3% | ||
| Louisiana | 39,009 | 13.8% | 12.5% | 11% |
| Maine | 18,620 | 8.0% | ||
| Maryland | 240,928 | 15.7% | 16.5% | -5% |
| Massachusetts | 91,879 | 5.8% | ||
| Michigan | 284,317 | 17.7% | 19.9% | -11% |
| Minnesota | 44,765 | 6.0% | 5.9% | 1% |
| Mississippi | 1,728 | 5.3% | 6.0% | -13% |
| Missouri | 162,143 | 17.2% | 17.4% | -1% |
| Montana | 3,207 | 4.7% | 6.1% | -23% |
| Nebraska | 20,930 | 7.9% | 7.8% | 2% |
| Nevada | 174,538 | 22.6% | 25.5% | -11% |
| New Hampshire | 20,609 | 7.7% | 8.6% | -11% |
| New Jersey | 254,376 | 13.8% | 14.5% | -5% |
| New Mexico | 19,108 | 6.8% | 9.5% | -28% |
| New York | 191,775 | 8.7% | 7.8% | 12% |
| North Carolina | 176,730 | 10.5% | 10.8% | -3% |
| North Dakota | 1,295 | 4.2% | 4.2% | -1% |
| Ohio | 499,589 | 20.8% | 20.6% | 1% |
| Oklahoma | 50,935 | 9.6% | 8.4% | 14% |
| Oregon | 49,133 | 5.6% | 6.4% | -12% |
| Pennsylvania | 270,212 | 12.4% | 12.0% | 3% |
| Rhode Island | 29,643 | 11.6% | 14.4% | -20% |
| South Carolina | 92,302 | 10.9% | 11.2% | -3% |
| Tennessee | 153,712 | 11.2% | 10.8% | 3% |
| Texas | 279,971 | 6.6% | 7.1% | -7% |
| Utah | 40,567 | 7.2% | 8.5% | -16% |
| Vermont | 1,403 | 4.6% | 5.5% | -15% |
| Virginia | 95,754 | 7.7% | 8.1% | -5% |
| Washington | 118,994 | 6.8% | 9.1% | -26% |
| West Virginia | 3,869 | 9.2% | 9.9% | -7% |
| Wisconsin | 87,800 | 11.5% | 10.9% | 6% |
| Wyoming | 1,161 | 3.4% | 3.5% | -2% |
Q1 2016 Equity Rich Data by State
| State | Equity Rich(LTV 50 or lower) | Pct Equity Rich | Year Ago Pct Equity Rich | YoY Pct Change |
| United States | 12,335,651 | 22.0% | 19.8% | 11% |
| Alabama | 54,137 | 15.1% | 14.8% | 2% |
| Alaska | 16,727 | 21.1% | 16.2% | 30% |
| Arizona | 375,178 | 20.4% | 18.0% | 14% |
| Arkansas | 36,047 | 15.6% | 15.2% | 2% |
| California | 2,714,976 | 33.4% | 28.9% | 16% |
| Colorado | 321,251 | 24.4% | 18.5% | 31% |
| Connecticut | 174,378 | 19.1% | ||
| Delaware | 41,537 | 19.3% | 18.4% | 5% |
| District of Columbia | 35,970 | 27.8% | 26.8% | 4% |
| Florida | 1,189,768 | 21.3% | 17.8% | 20% |
| Georgia | 254,379 | 16.2% | 14.7% | 10% |
| Hawaii | 100,402 | 36.9% | 34.4% | 7% |
| Idaho | 29,469 | 18.1% | 14.9% | 21% |
| Illinois | 350,915 | 13.1% | 12.9% | 2% |
| Indiana | 60,611 | 12.3% | 12.5% | -2% |
| Iowa | 44,908 | 16.2% | 14.8% | 9% |
| Kentucky | 42,443 | 15.5% | ||
| Louisiana | 41,926 | 14.8% | 14.2% | 4% |
| Maine | 67,837 | 29.0% | ||
| Maryland | 248,303 | 16.1% | 15.9% | 1% |
| Massachusetts | 449,403 | 28.4% | ||
| Michigan | 300,306 | 18.7% | 17.4% | 7% |
| Minnesota | 153,120 | 20.5% | 20.1% | 2% |
| Mississippi | 3,639 | 11.1% | 11.7% | -5% |
| Missouri | 135,861 | 14.4% | 13.2% | 9% |
| Montana | 17,565 | 25.8% | 19.5% | 32% |
| Nebraska | 39,813 | 15.1% | 14.0% | 8% |
| Nevada | 128,100 | 16.6% | 13.3% | 25% |
| New Hampshire | 57,030 | 21.2% | 20.1% | 5% |
| New Jersey | 400,762 | 21.7% | 21.3% | 2% |
| New Mexico | 53,983 | 19.3% | 14.4% | 34% |
| New York | 726,157 | 33.0% | 33.3% | -1% |
| North Carolina | 282,412 | 16.7% | 15.9% | 5% |
| North Dakota | 7,394 | 23.9% | 21.2% | 13% |
| Ohio | 314,576 | 13.1% | 12.7% | 3% |
| Oklahoma | 78,420 | 14.8% | 14.3% | 4% |
| Oregon | 232,754 | 26.4% | 21.9% | 21% |
| Pennsylvania | 457,716 | 20.9% | 20.7% | 1% |
| Rhode Island | 55,698 | 21.8% | 20.2% | 8% |
| South Carolina | 151,874 | 17.9% | 17.0% | 6% |
| Tennessee | 273,988 | 19.9% | 18.8% | 6% |
| Texas | 897,902 | 21.2% | 16.1% | 32% |
| Utah | 101,451 | 17.9% | 13.8% | 30% |
| Vermont | 10,024 | 33.2% | 29.9% | 11% |
| Virginia | 213,008 | 17.1% | 16.9% | 1% |
| Washington | 422,976 | 24.1% | 19.9% | 21% |
| West Virginia | 7,959 | 19.0% | 17.7% | 7% |
| Wisconsin | 143,728 | 18.8% | 19.2% | -2% |
| Wyoming | 8,815 | 25.9% | 23.7% | 9% |
Q1 2016 Foreclosures Underwater and Equity Rich by State
| State | Pct with Equity | Pct Seriously Underwater |
| United States | 49.4% | 28.8% |
| Alabama | 49.6% | 22.1% |
| Alaska | 83.0% | 3.8% |
| Arizona | 55.6% | 23.5% |
| Arkansas | 56.5% | 15.2% |
| California | 61.1% | 18.8% |
| Colorado | 83.8% | 7.5% |
| Connecticut | 43.1% | 35.2% |
| Delaware | 48.7% | 27.6% |
| District of Columbia | 67.2% | 18.0% |
| Florida | 40.0% | 38.2% |
| Georgia | 45.5% | 30.0% |
| Hawaii | 71.3% | 14.4% |
| Idaho | 76.5% | 6.7% |
| Illinois | 30.1% | 47.3% |
| Indiana | 42.1% | 28.3% |
| Iowa | 73.1% | 8.6% |
| Kentucky | 66.0% | 14.3% |
| Louisiana | 69.8% | 14.0% |
| Maine | 58.9% | 19.5% |
| Maryland | 33.4% | 40.4% |
| Massachusetts | 54.6% | 19.4% |
| Michigan | 47.1% | 36.6% |
| Minnesota | 71.8% | 10.8% |
| Mississippi | 62.1% | 3.4% |
| Missouri | 39.0% | 34.8% |
| Montana | 87.5% | 6.3% |
| Nebraska | 72.4% | 12.1% |
| Nevada | 34.3% | 43.6% |
| New Hampshire | 55.3% | 20.7% |
| New Jersey | 35.4% | 39.8% |
| New Mexico | 65.6% | 13.5% |
| New York | 66.8% | 15.1% |
| North Carolina | 59.7% | 15.1% |
| North Dakota | 95.2% | 0.0% |
| Ohio | 39.4% | 37.8% |
| Oklahoma | 70.6% | 11.5% |
| Oregon | 70.0% | 12.4% |
| Pennsylvania | 49.2% | 27.0% |
| Rhode Island | 34.1% | 40.9% |
| South Carolina | 59.3% | 16.3% |
| Tennessee | 55.8% | 19.3% |
| Texas | 78.0% | 9.5% |
| Utah | 73.3% | 9.8% |
| Vermont | 50.0% | 0.0% |
| Virginia | 45.4% | 24.3% |
| Washington | 62.6% | 13.1% |
| West Virginia | 55.6% | 11.1% |
| Wisconsin | 44.3% | 32.8% |
| Wyoming | 86.3% | 3.9% |
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