Summary of Second Quarter 2009 Negative Equity Data from First American CoreLogic
August 13, 2009
NEW DATA SHOWS NEARLY ONE‐THIRD OF ALL MORTGAGES UNDERWATER
More than $3 Trillion Worth of Property at Risk of Default
• More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity
position as of June 30, 2009 according to newly released data from First American CoreLogic. June’s negative
equity share was slightly lower than the 32.5 percent as of the end of March 2009 and it reflects the recent
flattening of monthly home price changes. As of June 2009, there were an additional 2.5 million mortgaged
properties that were approaching negative equity. Negative equity and near negative equity mortgages
combined account for nearly 38 percent of all residential properties with a mortgage nationwide.
• The aggregate property value for loans in a negative equity position was $3.4 trillion, which represents the total
property value at risk of default. In California, the aggregate value of homes that are in negative equity was
$969 billion, followed by Florida ($432 billion), New Jersey ($146 billion), Illinois ($146 billion) and Arizona ($140
billion). Los Angeles had over $310 billion in aggregate property value in a negative equity position, followed by
New York ($183 billion), Miami ($152 billion), Washington, DC ($149 billion) and Chicago ($134 billion).
• Negative equity, often referred to as “underwater” or “upside down,” means the borrower owes more on their
mortgage than the home is worth. Near negative equity is when mortgages are within five percent of being in a
negative equity position. Negative equity can occur because of a decline in value, an increase in mortgage debt
or a combination of both.
• The distribution of negative equity is heavily skewed to a small number of states as three states account for
roughly half of all mortgage borrowers in a negative equity position. Nevada (66 percent) had the highest
percentage with nearly two‐thirds of mortgage borrowers in a negative equity position. In Arizona (51 percent)
and Florida (49 percent), half of all mortgage borrowers were in a negative equity position. Michigan (48
percent) and California (42 percent) round out the top five states.
• The top five states’ negative equity share was 47 percent, compared to 25 percent for the remaining states. In
numerical terms, California (2.9 million) and Florida (2.3 million) had the largest number of negative equity
mortgages, accounting for 5.2 million or 35 percent of all negative equity loans. Ohio (862,000), Texas (777,000)
and Arizona (706,000) were also ranked among the top five states with the highest number of negative equity
loans.
“Negative equity continues to be the dominant driver of the mortgage market because it leads to foreclosures in the
event a borrower experiences some kind of economic shock such as a job loss, illness or other adverse situation. Given
that negative equity did not increase this quarter and home prices declines are moderating or flattening, we may be at
the peak of the negative equity cycle. However, until negative equity recedes and unemployment declines, mortgage
risk will continue to be very elevated,” said Mark Fleming, chief economist for First American CoreLogic.
Methodology*:
First American CoreLogic has created state‐ and CBSA‐level negative equity estimates for all single‐family residential properties in the U.S. The data
includes 47 million properties with a mortgage, which accounts for over 90 percent of all mortgages in the U.S.*. The data was revised for 2009
and the revisions included a large addition of junior liens (including multiple junior liens), additional residential property types that were previously
excluded and a broader range of home values. The net impact of the revisions was a large increase in negative equity.
First American CoreLogic used its public record data as the source of the mortgage debt outstanding (MDO) and it includes 1st mortgage liens and
junior mortgage liens in order to capture the true level of mortgage debt outstanding for each property. The current value was estimated by using
the First American CoreLogic Automated Valuation Models (AVM) for every residential property in the U.S. The data was filtered to include only
properties valued between $30,000 and $30 million because AVM accuracy tends to quickly worsen outside of that value range.
The amount of equity for each property was determined by subtracting the property’s estimated current value from the mortgage debt
outstanding. If the mortgage debt was greater than the estimated value, then the property is in a negative equity position. The data was created at
the zip code level and aggregated to the state, CBSA and U.S. totals.
*Note: Only data for mortgaged residential properties that have an AVM value is presented. There are several states where the public record, AVM
or mortgage coverage is very thin. Although coverage is thin, these states account for fewer than five percent of the total population of the U.S.
The mortgage debt outstanding was not adjusted for amortization, however the majority of mortgages were originated within the last six years
where the difference between the original mortgage debt outstanding and current mortgage debt outstanding is not large.
