Upside-down rate goes inside out

By J.R. Lind

Posted on November 24, 2009 at 12:43 pm

First American CoreLogic released its quarterly negative-equity report today, saying 22.6 percent of the nation’s mortgages as underwater — far lower than the second quarter. An encouraging sign on its face, except First American revised its methodology for determining when a mortgage does upside down.

[The new] proprietary model … factors in loan amortization and utilization rates for home equity lines of credit (HELOC), providing a more precise view of “underwater borrowers.”

Under the older methodology — which didn’t use amortization or lines-of-credit data — the underwater rate would have been 33.8 percent.

In Tennessee, things are much better by comparison. The report shows 13.2 percent of Tennesseans in a negative-equity situation. That is, however, higher than most of the eight states bordering Tennessee; only Georgia and Virginia were higher, both hovering near 24 percent (no data was available for Mississippi).

The change in method paid big dividends for the Nashville area, too. First American reported 9.84 percent of area mortgages as underwater. Had the old method been used, the number jumps to 26.9 percent, up from the second-quarter’s 25.4 percent.