For many the housing bubble brings to mind middle-class Americans buying million dollar homes. But according a nation-wide market report released by CoreLogic today, an overwhelming majority of underwater equity is actually sunk in properties worth less than $500,000. The report found that 23 percent of borrowers are in a negative equity position, and of the $750 billion in aggregate negative equity, approximately $620 billion are first liens or multiple liens on properties worth half a million dollars or less. Six hundred ninety billion dollars of the negative equity is non-delinquent.
Policymakers hoping to prevent another bubble by requiring a 20 percent down payment for a qualified residential mortgage, would be severely impacting Americans’ buying habits. According to CoreLogic, 39 percent of 2010 loan originations were for buyers with less than 20 percent equity. Nearly a quarter of loan originations were for buyers with less than 10 percent equity. The data supported the notion that the less equity a homeowner has, the more likely he or she is to default on that loan — especially as the impact of modifications begin to fade — and put further downward pressure on housing prices. TRD