Foreclosures cut number of 'underwater' homeowners

The number of homeowners in Hampton Roads who owed more on their mortgages than their homes were worth slid to just below 70,000 at the end of June, according to a new report.

That's still more than one in five local mortgage borrowers - 21 percent - who are "underwater" on the loans, according to CoreLogic, which is based in Santa Ana, Calif., and tracks mortgages across the country.

Although the number of underwater homes has fallen by about 2,000 since the end of 2009, the firm attributed the decline to lenders foreclosing on previously underwater properties rather than home values stabilizing or going up.

CoreLogic's quarterly report also said that 22,526 more mortgages will be underwater if home prices in the area decline 5 percent from their current level.

Homeowners who purchased or refinanced at the peak of the housing boom were the most susceptible to finding themselves underwater in a loan as home values fell across the region and eroded any equity the buyers had built up. Some new buyers also may find themselves underwater if they financed their home purchases with little or no down payment.

Home prices in the region have stabilized in recent months as first-time buyers spurred on by tax credits helped support the market in lower price ranges.

The median price of an existing home in South Hampton Roads was $225,000 in July, up 3.7 percent from the same month in 2009, according to figures from Real Estate Information Network, the Virginia Beach-based multiple listing service. However, year-to-date median prices are down about 2.3 percent compared with last year.

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.

While not every homeowner in negative equity will go into foreclosure, it reduces their ability to sell the homes without taking a loss - a situation known as a short sale.

Bank repossessions and foreclosure auctions in Hampton Roads have also remained at high levels in recent months, and CoreLogic's report indicates that foreclosure activity could grow, dampening prospects for a quick housing recovery.

Across the country, the number of homeowners owing more than their homes are worth slid to 11 million - or 23 percent of all residences with mortgages, CoreLogic reported. The majority of such negative-equity loans are in Nevada, Arizona, Florida, Michigan and California.

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