In spite of a sustained rally in home prices, the October Black Knight Financial Services Mortgage Monitor shows Four million borrowers currently underwater.


  • Black Knight found that even though underwater mortgages are now less than 8% of all mortgages, there are still roughly 4 million borrowers in negative equity positions, who are, on average, $39,000 underwater.
  • Underwater borrowers, representing nearly $800 billion in unpaid balances and $157 billion in negative equity, are 10X more likely to be delinquent than those with positive equity.
  • Underwater borrowers exhibit a 40% delinquency rate, as compared to just 4% for borrowers with equity
  • For those with combined LTVs of 150% or greater, more than 3 out of every four (77%) are delinquent
  • There are approximately 1.3 million underwater GSE-backed mortgages representing an aggregate $39 billion in negative equity; of these, 365K are delinquent
  • Much-discussed principal reductions on delinquent underwater borrowers would require up to $89 billion in write-downs; the GSE share alone would require up to $18 billion
  • Black Knight found some relaxation in credit requirements for refinance originations (though these are still high by historical standards)
  • Weighted average credit scores for GSE refinances have come down to 742 from a high of 766 in late 2011, while credit requirements on GSE purchase mortgages have remained tight since 2009
  • GNMA backed originations have also seen some relaxation in refi credit requirements, with weighted average credit scores down from 727 at the end of 2012 to 701 (which is still significantly higher than 2005’s average of 628)
  • Looking at the refi market as a whole, Black Knight found that borrowers with 740+ credit scores make up 55% of 2014 refi market, as compared to just 29% in 2005

Sustained Improvement in Negative Equity

Over the past two and a half years, there has been a sustained and continual improvement in negative equity, from 33.5 percent of borrowers being underwater in January 2012 to less than eight percent today

Only 1.2 percent of active mortgages have current CLTVs of 150 percent or higher, down from 9.5 percent in January of 2012 (the bottom of the market in terms of national home prices).

Delinquencies by Bucket

While the overall share of underwater mortgages continues to decline, delinquency rates are increasing among the remaining negative equity mortgages.

For the severely underwater – 150 percent or higher current CLTVs – over three out of every four borrowers (77 percent) are delinquent.

Mike “Mish” Shedlock