With more and more evidence of more and more borrowers walking away from their mortgage commitments due to overwhelming negative equity, I got to thinking: What exactly is the monetary tipping point for a homeowner, someone occupying the home, hanging pictures on the walls, perhaps raising their kids in the second and third bedrooms, going to the neighborhood block parties...what exactly is the negative equity number that makes them say, "We're outta here."
At least according to First American Core Logic. FACL put out its quarterly negative equity report today, showing that the number of "underwater" loans is rising, from 10.7 million in Q3 to 11.3 million in Q4 or 24 percent of all borrowers from 23 percent.
What interested me was a paragraph lower down in the report:
"The rise in negative equity is closely tied to increases in pre-foreclosure activity and is a major factor in changing homeowner default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property values, owners begin to default with the same propensity as investors."
This behavior is apparently measured by the actual data, that is, the default rates of investors vs.. owners and comparing that to loan-to-value ratios.
I asked for a little deeper explanation from their economist, Mark Fleming.