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September 14, 2014

The More Underwater, the Higher the Risk of Default

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The More Underwater, the Higher the Risk of Default

Mortgage delinquencies are down 30 percent from the peak reached in January 2010, Lender Processing Services reports in its July Mortgage Monitor. 

The report showed that 18 percent of borrowers who are “underwater” are still current on their loan payments. 

But “as negative equity increases, we see corresponding increases in the number of new problem loans,” says Herb Blecher, senior vice president at LPS Applied Analytics. “In Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than three percent of borrowers who were up to date on their payments are 60 or more days delinquent six months later. This suggests that further home price declines -- should they occur -- could jeopardize recent improvements."

Meanwhile, national foreclosure inventories are remaining stable, the report shows, but levels are still near historic highs. 

Non-judicial foreclosure states are seeing the biggest improvements. In the past year, inventories have fallen 8.7 percent in non-judicial states while foreclosure inventories have dropped 3.1 percent in states that require court approval of foreclosures. 

Source: Lender Processing Services, Inc.

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