Underwater Borrower Population Falls to 11-Year Low

Black Knight Financial Services, Jacksonville, said homeowners with negative equity fell below two million for the first time since 2006.

The company’s monthly Mortgage Monitor report also reported tappable equity rose by nearly $700 billion over the past year to just under $5 trillion. Black Knight said more than 40 million American homeowners have tappable equity available in their homes, the largest such population on record.

The report said underwater borrowers declined by 16 percent in the first three months of 2017. Nearly 350,000 borrowers regained equity in the first quarter, bringing the total underwater population down to 1.8 million. The underwater population has fallen by nearly one million borrowers in the past year, a 35 percent annual decline.

“The steady upward trajectory of home prices continues to improve the equity positions of many homeowners,” said Black Knight Data & Analytics Executive Vice President Ben Graboske. “This is plainly visible in the number of borrowers who are underwater on their mortgages, owing more than their homes are worth.”

Graboske noted home prices rose by 2.3 percent in the first quarter, as compared to 1.8 percent over the same period last year.

“What stands out is the disparity we see in this improvement,” Graboske said. “As has been the case for some time now, negative equity has become more and more a localized phenomenon. But it’s also becoming concentrated among a particular class of homeowner. Nearly half of all borrowers who remain underwater own homes in the lowest 20 percent of prices in their respective markets. While the nation as a whole now has a negative equity rate of just 3.6 percent, among owners in that lowest price tier, it’s over eight percent.”

Graboske said these lowest-price-tier properties are more than twice as likely to be underwater as those in the next price tier up and 6.5 times more likely to be underwater than those living in the top 20 percent of the market, the highest differential between high and low price tiers since Black Knight began keeping track in 2005.

“In some areas, the disparity between the lowest price tier and the highest is staggering,” Graboske said. “In Detroit, for example, borrowers whose homes are in the lowest 20 percent of prices are 50 times more likely to be underwater than those in the top 20 percent.”

Meanwhile, tappable equity rose to $695 million over the past year. “If home prices continue to rise at or near their current rate of appreciation, tappable equity will likely hit record highs by this summer,” Graboske said.

The report said though nearly half of the country’s 100 largest metropolitan areas have already reached record levels of tappable equity, as a whole these areas remain geographically concentrated. The majority are found in more coastal areas, specifically in large city centers. More than half of the nation’s tappable equity lies in the 10 largest metro areas, with California alone containing nearly 40 percent of available equity.

“While the growth in tappable equity is obviously good news for both homeowners and lenders alike, it does represent some risk as well,” Graboske said. “Investors in mortgages and mortgage servicing rights–as well as others with a stake in the broader mortgage market–need to be prepared to account for a higher share of equity-driven prepayment risk, as well as an increased chance of borrowers adding on second liens that primary loan servicers and investors may not be aware of.”

Other report results:

–Total U.S. loan delinquency rate: 3.79%

–Month-over-month change in delinquency rate: -7.13%

–Total U.S. foreclosure pre-sale inventory rate: 0.83%

–Month-over-month change in foreclosure pre-sale inventory rate: -2.97%

–States with highest percentage of non-current loans: Mississippi, Louisiana, Alabama, West Virginia and Maine

–States with lowest percentage of non-current loans: Oregon, Idaho, Minnesota, North Dakota and Colorado.

–States with highest percentage of seriously delinquent loans: Mississippi, Louisiana, Alabama, Arkansas and Tennessee.