This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Underwater Mortgages Drop to 9 Million as Home Prices Rise: Report

NEW YORK ( TheStreet) -- Rising home prices are helping pull more distressed borrowers from out of the water, according to the March Mortgage Monitor Report from Lender Processing Services(LPS).

The number of underwater borrowers -- those who owed more than their homes were worth -- fell 41% from a year earlier. In total, 9 million borrowers or 18% of active mortgages were underwater at the end of March.

In states such as Florida and Nevada, the share of underwater mortgages is 33% and 39% respectively, well above the national average. Still, even these states saw improvements in borrowers' equity in their mortgages.

The decline in underwater or negative equity mortgages is significant, because borrowers who owe more than their homes are worth tend to default at higher rates as they lose the economic incentive to continue paying their mortgage.

"There has always been a clear correlation between higher levels of negative equity and new problem loan rates," according to LPS Applied Analytics Senior Vice President Herb Blecher. "Looking at the March data, we see that borrowers with equity are actually outperforming the national average -- at 0.6 percent, this group is quite close to pre-crisis norms. The further underwater a borrower gets, the higher those problem rates rise. Borrowers with loan-to-value (LTV) ratios of just 100-110 percent are actually defaulting at more than twice the national average. For those 50 percent or more underwater, we see new problem rates of 4 percent."

Still, the overall decline in negative equity has helped lower the "new problem loan" rate -- seriously delinquent loans that were current six months earlier -- to less than 1% for the first time since March 2007, according to the report. The new problem loan rate is now 0.84% nationwide.

Most of the problem loans on bank balance sheets have actually been delinquent for a very long time. More recently issued mortgages are performing very well because they have been underwritten amid much tighter credit quality standards.

The report also found that foreclosure starts -- fresh foreclosure filings -- continued to decline across states, dropping 8.2% month over month, while foreclosure sales rose 10.1%.

Foreclosure sales excluding California rose 13% in the first quarter over the fourth quarter of 2012. California saw a 35% drop in foreclosure sales in the wake of its newly enacted Homeowner Bill of Rights, which essentially has slowed down the foreclosure process in the state.

-- Written by Shanthi Bharatwaj in New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.64 -0.11%
FB $118.57 0.84%
GOOG $698.21 0.75%
TSLA $241.80 0.43%
YHOO $36.53 -0.19%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs