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Rising Home Prices Pull 850,000 Borrowers Out of Deep Waters

NEW YORK (TheStreet) -- Rising home prices helped 850,000 borrowers regain equity in their homes during the first quarter of 2013, according to the latest report from real estate analytics provider CoreLogic.

According to the report, 9.7 million properties or 19.8% of all properties with a mortgage still had "negative equity" at the end of the first quarter. That is down from 10.5 million or 21.7% of all residential properties with a mortgage at the end of the fourth quarter.

Rising home prices have helped pull 1.7 million back to shore during the past year.

A borrower is said to have negative equity if he owes more on his mortgage than what his house is currently worth. These borrowers are also referred to as "underwater" borrowers or "upside down" borrowers. Nationally borrowers owe $580 billion more than their properties are worth.

About 6 million borrowers hold first-liens without home equity loans. The average mortgage balance for this group of borrowers is $211,000. The average underwater amount is $48,000.

Another 3.7 million hold first and second liens. The average mortgage balance for this group of borrowers is $294,000.The average underwater amount is $79,000, according to the report.

The decline in underwater borrowers is good news for at least two reasons.

First, underwater borrowers have shown a higher propensity to default on their mortgages. The fact that underwater borrowers typically find it very difficult to refinance their loans into lower interest rates is one reason why they are likely to default.

The government's Home Affordable Refinance Program, which was recently extended till end of 2015, will increase refinancing opportunities for some underwater borrowers.

But for those with private mortgages, refinancing is more challenging and regaining equity in their homes gives borrowers an opportunity to capitalize on interest rates while they are still low.

The decline in underwater borrowers might also release pent-up supply and moderate price gains in fast-appreciating markets, according to CoreLogic economist Mark Fleming. This is of course good news for homebuyers who have been struggling to find homes amid unusually tight supply conditions.

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