Data: Underwater homeowners stuck in higher interest rates
The vast majority of Americans with mortgages worth more than their homes are also trapped into high interest rate loans, putting them in precarious financial situations, according to data released Tuesday.
A total of 10.9 million homes with a mortgage were in negative equity positions at the end of the second quarter, comprising 22.5% of all residential properties with a mortgage, according to Santa Ana research firm CoreLogic. That was only a slight decline from 22.7% during the first three months of the year.
Of those underwater homeowners in the second quarter, three out of four had mortgages above the market rate, according to the data.
Economists consider high mortgage payments on underwater homes a dangerous precondition for foreclosure. The reason is, these homeowners can feel hopelessly trapped by the bad decisions made during the boom years and can be more willing to give up paying their mortgages.
"High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” CoreLogic Chief Economist Mark Fleming said in a statement.
In Los Angeles County, there were 356,677 homes with a mortgage that were underwater, making up 23.2% of all homes in the county.
Widespread negative equity keeps borrowers from being able to refinance and benefit in the current low-rate environment. Negative equity also restricts home sales as would-be sellers and move-up buyers remain stuck in their homes.
One major contributor to the decline in the share of home equity turning negative is foreclosure. Indeed, the share of negative equity properties in the hardest hit states has improved due to borrowers losing their homes over the last year, CoreLogic said.
President Obama, in his address to Congress last week, said that helping homeowners refinance their loans could free up a considerable chunk of spending each year for families. Mortgage rates have dived to historic lows amid concerns the economy is sinking again. In response, the Federal Housing Finance Agency, which oversees mortgage titans Fannie Mae and Freddie Mac, said last week that it would review its policies to see if more homeowners would qualify for the administration's Home Affordable Refinance Program.
The program covers only mortgages originated before June 2009 and owned or guaranteed by Fannie Mae or Freddie Mac.
-- Alejandro Lazo
Photo: A street sign lies on the ground in an unfinished housing development site in Victorville, Calif.
Credit: Associated Press