Less than 1% of Seriously Underwater U.S. Properties Qualify
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Less than 1 Percent of Seriously Underwater U.S. Properties Qualify for Principal Reduction Under New FHFA Program

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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%