Fewer mortgages in state underwater

10.1% owe more than houses worth

MICHAEL LIPKIN
ARKANSAS DEMOCRAT-GAZETTE

The number of Arkansans who owe more on their mortgages than their houses are worth fell slightly in the first quarter, a real estate research firm says. More than 24,000 of the states 243,134 mortgages, or 10.1 percent, were underwater mortgages, according to a report released earlier this month by Santa Ana, Calif.-based CoreLogic. Thats down from 10.4 percent in the last quarter of 2010. Another 14,000 Arkansas mortgages are within 5 percent of having negative equity, the report said. That means about one in every six Arkansas mortgages were underwater or close to it. Economists said the de-

cline in underwater mortgages does not indicate a strengthening housing market. Instead, it is likely because of foreclosures on homes with negative equity. The houses with high negative equity were likely foreclosured on, and are no longer part of the equation, said Jeff Collins, an economist with StreetSmart Data Services NWA. The average value of homes in Arkansas fell 1.6 percent in the first quarter, according to the Federal Housing Finance Agency. That means the falling negative equity share will probably not have a significant positive effect on consumer confidence, said Mervin Jebaraj, a research
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assistant at the Center for Business and Economic Research at the University of Arkansas at Fayetteville. A lot of the decrease is coming from people who have been foreclosed on, and they still owe the money on their mortgage, Jebaraj said. Theyre not ready to spend. In the Little Rock metropolitan area, about 7 percent of the mortgages have negative equity, and another 6 percent are within 5 percent of negative equity. In the Fayetteville metropolitan area, nearly 19 percent of the mortgages have negative equity, and about 8 percent

more are within 5 percent of negative equity, CoreLogic said. Nationally, more than a fifth of all mortgage-holders owed more on their houses than they were worth, and another 5 percent were within 5 percent of being there. Thats almost the same as the last quarter of 2010. Arkansas has fared better than the rest of the country, because the state never saw the kinds of housing bubbles that affected states such as Nevada, where nearly two-thirds of mortgages are underwater. That meant houses preserved more of their value as the market corrected itself. CoreLogics report also found that homeowners with second mortgages were more

than twice as likely to be underwater than those with just one mortgage. CoreLogic did not have any state-specific data on second mortgages. Scott McElmurry, chief executive of Bank of Little Rock Mortgage, said CoreLogics study makes perfect sense based on his experience with second mortgages. Most of his customers looking for a second mortgage on their home opt for a line of credit with a fluctuating interest rate rather than a more traditional fixedrate loan. Fixed-rate loans are much more commonly used for purchasing assets, like a car or home repairs, McElmurry said, whereas lines of credit are used for more ephemeral purchases like a vacation. Those

types of purchases do little to add value to a home. Nonetheless, CoreLogics report may not completely reflect the effects of second mortgages on home equity, economist Michael Pakko said. If youve purchased an asset a vacation home, a car using the credit, its misleading to look at negative equity value alone. Factoring in the value of the purchase, it may not be a net underwater position, said Pakko, a state economic forecaster and chief economist for the University of Arkansas at Little Rocks Institute for Economic Advancement. CoreLogics data are based on public records for 48 million properties, or about 85 percent of all mortgages in the country, the company said.