Wednesday, March 07, 2012

Lawler: 31% of FHA loans in negative equity

by Calculated Risk on 3/07/2012 04:59:00 PM

A short note from economist Tom Lawler:

In CoreLogic’s “Negative Equity Report” for December 2011, the company estimated that properties backing a conventional mortgage that were in a negative equity position had an average mortgage balance of $269,000 and were “underwater” on average by $70,000. For properties backing FHA-insured mortgages that were in a negative equity position, the average mortgage balance was $169,000 and the average negative equity amount was $26,000.

What the press release didn’t say, however, is what percent of properties backing FHA-insured mortgages in its database were in a negative equity position (it gave the number, but its database does not include all mortgages). CL was nice enough to give me that figure – according to CL, 31% of the properties in its database backing FHA-insured mortgages were in a negative equity position in December. That compares to 21.8% for properties backing non-FHA mortgages.

CR Note: I'm not surprised that a larger percentage of FHA loans are in negative equity since the FHA has insured a large number of loans in recent years with small downpayments, while prices - according to CoreLogic - have continued to fall (as an example, prices are down about 10% since mid-2010 through the January report released this morning - so most FHA loans made in 2010 are probably in negative equity).

What is a little surprising is the percent of negative equity for those FHA loans. Even though the percent negative equity is much smaller than for non-FHA loans, the percent is still fairly high considering most of the FHA loans were made in the last few years.