Bailout

Negative equity datapoint of the day

By Felix Salmon

Calculated Risk has the latest First American CoreLogic negative-equity numbers, and a scary chart to boot:

The share of borrowers whose mortgage debt exceeds the property value by 25% or more fell slightly to 10.4% or 4.9 million borrowers, down from 10.6% or 5 million borrowers. The aggregate dollar value of negative equity for these deeply underwater borrowers was $656 billion.

Once your negative equity reaches 25%, chances are you’re going to default even if you don’t have to: walking away is becoming both more common and more socially acceptable.

I’d love to know whether any banks at all mark their mortgage holdings to market if the mortgages are performing. My guess is that they don’t — which means that there’s likely to be a lot more in the way of write-downs hitting banks over the next few years. Especially in the sand states.

Full post as published by Macroprudential on May 12, 2010 (boomark / email).