State-Level Information on Negative Home Equity and Loan Performance in the Nonprime Mortgage Market
GAO-10-633R: Published: May 14, 2010. Publicly Released: Jun 14, 2010.
The decline of home prices in many parts of the country has left millions of homeowners with negative home equity, meaning that their outstanding mortgage balances exceed the current value of their homes. As we reported to you previously, a substantial proportion of borrowers with active nonprime mortgages (including subprime and Alt-A loans) had negative equity in their homes as of June 30, 2009. For example, among the 16 metropolitan areas examined, we estimated that the percentage of nonprime borrowers with negative equity ranged from about 9 percent (Denver, Colorado) to more than 90 percent (Las Vegas, Nevada). Research indicates that negative home equity substantially increases the risk of mortgage delinquency, making it an important dimension of ongoing problems in the nonprime market. To provide insight into how negative equity and loan performance among nonprime borrowers have varied by location and over time, this report examines, at the state level, the estimated proportion of nonprime borrowers with active loans that were in a negative equity position and the proportion that were seriously delinquent on their loan payments from 2006 through the end of 2009. This report is part of our broader examination of the evolution and condition of the nonprime market segment.
For most states and the District of Columbia, the estimated percentage of nonprime borrowers with active loans that were in a negative equity position increased from 2006 through mid-2008 and then remained fairly stable through the end of 2009. Growth in negative equity rates during that period varied widely among the states. Negative equity rates rose by at least 30 percentage points in 7 states, by 10 to 29.9 percentage points in 17 states, and by 5 to 9.9 percentage points in 9 states. Eighteen states' negative equity rates grew by less than 5 percentage points, including 3 states where the percentage of nonprime borrowers with negative equity increased negligibly. For all states and the District of Columbia, the percentage of nonprime borrowers that were seriously delinquent--90 days or more late in payments or in the foreclosure process--increased from the first quarter of 2006 through the end of 2009, with growth ranging from 5.3 percentage points in Louisiana to 43.3 percentage points in Florida. Additionally, across all states and the District of Columbia, our measures for increases in estimated negative equity and serious delinquency rates exhibited a positive statistical correlation. Consistent with this observation, 6 of the 10 states that experienced the largest percentage point increases in negative equity rates also were among the 10 states with the largest percentage point increases in serious delinquency rates. However, the remaining 4 states ranked from 12th to 26th in their increases in serious delinquency rates.