In Hampton Roads, 1 in 3 homes with mortgages underwater

More than 110,000 homeowners in Hampton Roads owed more on their mortgages than their homes were worth at the end of June as home prices continued to fall, according to a report released Thursday.

That's roughly 34 percent of all mortgages in the local market, according to First American CoreLogic of Santa Ana, Calif., which tracks mortgages across the country.

The firm's quarterly report, which generated data for Hampton Roads for the second time, also said that an additional 16,000 mortgages will be "underwater" if home prices in the area decline 5 percent from their current level.

The report showed that for the first time the percentage of mortgages underwater in Hampton Roads had exceeded the national average of 32.2 percent.

"I would not have expected this," said Vinod B. Agarwal, an economist at Old Dominion University. "This doesn't say the housing market is going to crash. It does tell us that it's going to take longer for the market to stabilize."

Homeowners who purchased at the peak of the local housing boom, especially with little or no down payment or an interest-only loan, are the most susceptible to finding themselves "underwater," or "upside down" - owing more than a home is worth. Falling home values can erode any equity homeowners have in a newly purchased or refinanced home.

Across the country, more than 15.2 million homeowners owe more than their homes are worth, First American CoreLogic reported. The majority of such "negative equity" mortgages are in states such as California, Florida, Illinois and New Jersey. In Virginia, 33.1 percent of all mortgages were underwater.

Economists and real estate experts say that owing more on a home than it's worth is one of the most common precursors to foreclosure. The report came on the same day that online foreclosure-monitoring service RealtyTrac reported foreclosure activity in the area had eased in June after reaching a record high in April.

First American CoreLogic recently changed its methodology to include the value of junior liens on properties, such as second mortgages and home equity lines of credit. In the first report that the research firm published in March, Hampton Roads had a smaller percentage of its mortgages underwater than the national average.

The new report suggests that homeowners in Hampton Roads were more likely to have borrowed against their homes as prices in the region rose, Agarwal said.

"We never knew the extent to which people in the area had borrowed against their homes," Agarwal said. "We knew people cashed out, because over the last several years you saw taxable sales growing faster than incomes. So the only way you can spend more than you earned is dipping into your wealth, such as getting equity from your homes."

The total aggregate value of homes at risk of defaulting in Hampton Roads at the end of June was nearly $26 billion, according to the report.

"Despite these numbers, I do think things are improving here," said Brian Holland, president of Virginia Beach-based Atlantic Bay Mortgage Group.

The number of negative-equity loans in the region could be exacerbated by the prevalence of local mortgages guaranteed by the Department of Veterans Affairs with no down payments, Holland said. After fees, those loans typically are automatically underwater, he said.

Home prices in South Hampton Roads have fallen 4.4 percent in the past year, according to Real Estate Information Network Inc., the local multiple listing service.

The median sale price for existing homes in June was $222,750, down from $233,000 a year ago.

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com