Below the Line: Estimates of Negative Equity among Nonprime Mortgage Borrowers
The boom in nonprime mortgage lending that occurred in the United States between 2004 and 2006 was quickly followed by rapid increases in the rate of delinquencies and foreclosures on these loans. This pronounced deterioration alarmed investors, the public, and policymakers.
Significantly, uncertainty about the source of the decline in loan quality has played a key role in the credit crunch that began in mid-2007.
Nonprime loan originations rose sharply after 2003, and these loans became delinquent far more quickly than had earlier vintages. Indeed, loans originated in 2004 performed poorly compared with earlier vintages, and the 2005 and 2006 vintages became seriously delinquent within a year of origination at rates that the 2003 vintage took twenty and thirty months to reach, respectively.
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More than $3 Trillion Worth of Property at Risk of Default
More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009 according to newly released data from First American CoreLogic. June’s negative equity share was slightly lower than the 32.5 percent as of the end of March 2009 and it reflects the recent flattening of monthly home price changes.
As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.
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