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Underwater Borrowers Account for 77% of Active Foreclosures


While foreclosures might sound like old news, there are still a ton of borrowers either behind on mortgage payments or in the process of foreclosure.

And it doesn’t appear as if the type of loan they took out was the problem. It’s just the fact that they took out their loan at exactly the wrong time.

And by that, I mean most borrowers facing foreclosure these days are underwater on their mortgages, and deeply underwater at that, possibly because they purchased homes at the height of the market.

That brings us to a new report from Black Knight Financial Services, which revealed that borrowers in negative equity positions accounted for 77% of all active foreclosures, per their latest Mortgage Monitor for the month of March.

So while some might just be having trouble with monthly payments because of a job loss or an illness, or simply because they took on too much mortgage, most are behind because their property values are in the red.

It might be conjecture to say that, but it’s clear there’s little incentive to keep paying an underwater mortgage, especially if it’s still underwater after all the recent home price gains.

Put simply, it makes sense that 29% of underwater borrowers are seriously delinquent on their mortgages.

Cheaper Homes 9X More Likely to Be Underwater

Black Knight also found that borrowers who own the bottom 20 percent of homes by price are nine times more likely to be underwater when compared to those in the top 20 percentile.

In other words, high-end homes have largely avoided the negative equity crisis that has plagued the rest of the market.

This could be a combination of higher down payments, more affluent borrowers, and better performance (rebounding) of higher-end homes.

Overall, their data show that slightly more than eight percent of all borrowers are currently underwater on their mortgages.

The good news is we’ve seen a near-30% decline in the negative equity rate from a year earlier.

The bad news is one of every three borrowers currently in the process foreclosure has a loan-to-value ratio of 150% or more.

For the record, Nevada and Florida continue to lead the country in terms of negative equity rates, with 16.4% and 15.1% of borrowers underwater, respectively.

And Florida and California have the highest number of underwater properties.

Mortgage Delinquencies See Largest Drop in Nine Years

The mortgage delinquency rate has also improved immensely, and though seasonal declines are typical in March, the 12.18% drop seen this year was the largest monthly decline in nearly a decade.

Additionally, declines have been witnessed in all stages of delinquency (30, 60, 90 and 120+ day lates).

In fact, 30-day delinquencies hit their lowest level in over 10 years. And for every 10,000 loans that were current at the end of February, just 73 missed a payment in March, the lowest current-to-30 day late roll rate in over 15 years.

Roll rates from 30-to-60 and 60-to-90 days delinquent also fell to their lowest levels in nine years, and loans that were previously delinquent are curing (becoming current again) at the highest clip since 2005.

So while underwater loans persist, new problem loans seem to be few and far between.

Separately, the MBA reported today that the delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 5.54% as of the end of the first quarter.

This is the lowest recorded rate since the second quarter of 2007.

Meanwhile, just 2.22% of loans were in some stage of foreclosure, down from 2.65% a year earlier, the lowest foreclosure inventory rate since the fourth quarter of 2007.

So it looks as if things are nearly back to normal, though certain areas of the country continue to suffer disproportionately.

The scary part is that NAR thinks home prices are overvalued again, but if prices dip again negative equity-related problems could resurface.

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