A report released yesterday by CoreLogic Inc., a real estate data company, said that "almost 40 percent of homeowners who took out second mortgages - extracting cash from their residences to cover everything from vacations to medical bills - are underwater on their loans, more than twice the rate of owners who didn't take out such loans, according to an article in yesterday's edition of The Wall Street Journal by Robbie Whelan.
The report said that 38 percent of borrowers who took cash out of their residences using home-equity loans are underwater, or owe more than their home is worth and by contrast 18 percent of borrowers who don't have these loans were underwater, the article said.
What is clear, the article continued, is that home-equity loans, which account for about 10 percent of the U. S. mortgage market, have been a headache for homeowners and lenders alike and second mortgages are weighing on a fitful recovery in which housing has figured as particularly weak spot, the article said.
CoreLogic found that borrowers with second mortgages had deeper levels of negative equity - an average of $83,000 compared with $52,000 - than borrowers without second mortgages and the CoreLogic report did not include cash-out refinancing, a common practice during the boom, where borrowers opted to extract cash while refinancing their first mortgage, the article continued.
The article said that the CoreLogic study found that the percentage of underwater borrowers declined slightly in the first quarter. It said that 10.9 million Americans who borrowed to buy their homes, or 22.7 percent of all homeowners with a mortgage nationwide, were underwater in the first quarter, down from 11.9 million, or 23.1 percent in the fourth quarter of 2010.
The decline, however, was not a sign of an improving market, according to the article, as the change reflected completed foreclosures, which reduced the total number of homeowners in the market, CoreLogic said.
The article quoted Jan Hatzius, chief U. S. economist for Goldman Sachs Group, that "the implication is that there are still a lot of people who are at risk of default, so delinquency and default rates are going to reflect that large amount of negative equity for some time to come."
While the majority of first mortgages were bundled into pools and resold to investors as securities, second-lien mortgages are heavily concentrated on bank balance sheets, the article said, and nearly three-quarters of the $950 billion or so in home-equity loans outstanding were held by commercial banks at the end of last year according to Federal Reserve data.
The report said that 38 percent of borrowers who took cash out of their residences using home-equity loans are underwater, or owe more than their home is worth and by contrast 18 percent of borrowers who don't have these loans were underwater, the article said.
What is clear, the article continued, is that home-equity loans, which account for about 10 percent of the U. S. mortgage market, have been a headache for homeowners and lenders alike and second mortgages are weighing on a fitful recovery in which housing has figured as particularly weak spot, the article said.
CoreLogic found that borrowers with second mortgages had deeper levels of negative equity - an average of $83,000 compared with $52,000 - than borrowers without second mortgages and the CoreLogic report did not include cash-out refinancing, a common practice during the boom, where borrowers opted to extract cash while refinancing their first mortgage, the article continued.
The article said that the CoreLogic study found that the percentage of underwater borrowers declined slightly in the first quarter. It said that 10.9 million Americans who borrowed to buy their homes, or 22.7 percent of all homeowners with a mortgage nationwide, were underwater in the first quarter, down from 11.9 million, or 23.1 percent in the fourth quarter of 2010.
The decline, however, was not a sign of an improving market, according to the article, as the change reflected completed foreclosures, which reduced the total number of homeowners in the market, CoreLogic said.
The article quoted Jan Hatzius, chief U. S. economist for Goldman Sachs Group, that "the implication is that there are still a lot of people who are at risk of default, so delinquency and default rates are going to reflect that large amount of negative equity for some time to come."
While the majority of first mortgages were bundled into pools and resold to investors as securities, second-lien mortgages are heavily concentrated on bank balance sheets, the article said, and nearly three-quarters of the $950 billion or so in home-equity loans outstanding were held by commercial banks at the end of last year according to Federal Reserve data.
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
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