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28 Million Outstanding Mortgages Have Above Market Rates

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Like clockwork (days after the underwater refinance plan emerged), CoreLogic released a new report today revealing the millions of underwater homeowners who have above-market interest rates on their mortgages.

The company noted that 10.9 million (22.5%) of all residential properties with a mortgage were in a negative equity position as of the end of the second quarter.

That’s actually down slightly from 22.7 percent a quarter earlier, but obviously not in a meaningful way.

Another 2.4 million borrowers had less than five percent home equity, designating them as “near-negative equity” homeowners.

So roughly 30 percent of all homes with a mortgage can’t be sold or refinanced, unless via short sale, short refinance, or some special government/lender program.

And it’s clear that many of these borrowers would stand to benefit from that freedom.

28 Million Mortgages “Refinanceable”

CoreLogic said nearly 28 million outstanding mortgages have above market mortgages rates that are, in theory, “refinanceable.”

The company defined an above market rate as 5.1 percent (or higher), which is roughly a point higher than current levels for a 30-year fixed-rate mortgage.

Ironically, twenty million borrowers with positive equity, or 53 percent of all “above-water borrowers,” have above market mortgage rates.

This may sound surprising, but given the fact that rates have dropped nearly a percentage point since Spring, it’s a given, even for those who refinanced fairly recently.

There’s probably also several million who don’t like to “mess with” their mortgage, and so they continue to pay above market for that perceived peace of mind.

Meanwhile, another eight million borrowers with negative equity, or nearly 75 percent of all underwater mortgages, have above market rates.

It gets worse for those with severe negative equity.

More than 40 percent of borrowers with 125 percent or higher loan-to-value (LTV) ratios have mortgages with interest rates at six percent or higher, compared to just 17 percent for borrowers with positive equity.

So I guess this makes it clear that plenty of underwater mortgages could benefit from that new refinance program floating around.

But it still relies on home prices eventually rising, given the lack of principal reduction.  And it doesn’t allow people to sell their homes.

The report found that negative equity has inhibited non-distressed home sales significantly.

Since 2005, non-distressed sales in areas with low negative equity have fallen 61 percent, compared to an 83 percent sales decline in areas where negative equity is prevalent.

And perhaps the most interesting piece of information from the report was that the homebuyer tax credit contributed to a spike in high LTV FHA loans.

So much for that stimulus.

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