Homeowners Rise Above Water on Mortgages

By Diana Olick, CNBC Real Estate Reporter

NEW YORK (CNBC) -- Fewer U.S. homeowners owe more on their mortgages than their homes are currently worth, according to a new report from online real estate company Zillow. Nearly two million came out from underwater in 2012, and Zillow analysts estimate another one million more will see positive home equity in 2013. That sounds like a lot, but an estimated 13.8 million borrowers are still lacking any home equity, or 27.5% of all homeowners with a mortgage.

"Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets," said Zillow Chief Economist Dr. Stan Humphries. "But negative equity is still very high, and millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas. As a result, negative equity will remain a major factor in the market for the foreseeable future."

Still millions more are in a "near-negative equity" position, with less than five percent home equity. That makes it impossible for them to sell without having to pay various fees out of pocket. It also gives them nothing to put down on another home.

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Zillow is not the only entity predicting negative equity moves, and the estimates vary widely. That is because it is difficult to know the exact reason any borrower comes above water. Much of it is home price appreciation, but some borrowers are also paying into their loans to get better refinance rate, while thousands are getting principal write-down, thanks to the $25 billion mortgage servicing settlement signed early last year.

In fact, 70,810 borrowers so far have received a collective $7.409 billion in loan principal forgiveness, averaging approximately $104,626 per borrower, according to a report released Thursday by the settlement's monitor. 25,000 more borrowers are in trial modifications with nearly $3.5 billion in principal forgiveness. That is $11 billion toward positive equity. Of course American homeowners with a mortgage are still collectively underwater by more than $1 trillion, according to Zillow.

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