Homeowners who are under water on their mortgages – those with negative equity – are twice as likely to be delinquent on their mortgage payments or in default on their loans, according to an analysis from the Federal Reserve Bank of New York.
The report, released today, estimates the number of homeowners in negative equity at the end of 2008 at around 29 percent of all liens. Of loans originated in 2006, more than 60 percent are in negative equity.
"Many nonprime borrowers in negative equity took out loans near the peak of the housing market and their mortgages had high loan-to-value ratios usually achieved with subordinate liens," the study authors said.
The authors said in their report, Below the Line: Estimates of Negative Equity among Nonprime Mortgage Borrowers, that if house prices fall an additional 10 percent from December 2008 levels, about 1.5 million new mortgages nationwide will be in negative equity.
The aggregate difference between these mortgages and house values could reach $135 billion.
Analysis of the seventeen major cities covered by the S&P/Case-Shiller indices showed a concentration of negative equity properties in areas that experienced large declines in housing prices and had more recent loans, particularly markets in California, Arizona and Nevada. 