Why SKREAM?

Nearly one-quarter of US mortgagors owed more on their loans than the value of their homes for the quarter ending December 31, 2009. Nevada, Arizona, Florida, Michigan and California were the states with the highest percentage of negative equity borrowers.

“Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”

Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both and once it reaches a certain point, is a trigger to strategic default.

Nevada, at 70%, was the state with the highest percentage of negative equity borrowers, followed by Arizona (51%), Florida (48%), Michigan (39%) and California (35%). Among the top five states, underwater mortgages accounted for 42% of all loans, while underwater mortgages only took a 15% share in the remaining 45 states.

Last summer, Deutsche Bank analyst Karen Weaver wrote continued declines in home values will increase the number of US mortgagors with negative equity to 25m in Quarter 1 2011, which she projects will represent 48% of all US borrowers.

In terms of value, the nation’s borrowers are a combined $801 billion underwater. Once negative equity exceeds 25%, or the mortgage balance is $70,000 higher than the current property values, owners begin to default with the same propensity as investors. The average underwater borrower had $70,700 in negative equity, up from $69,700 in Q309. The segment of borrowers 25% or more underwater accounts for more than $660 billion in negative equity.

On the opposite end of the spectrum, there are more than 23 million, or 49% of all homeowners with a mortgage who have at least 25% equity in their homes and more than 12 million borrowers with at least 50% equity in their homes.