Home Prices Up, But 18% of Mortgages Still Underwater
By: Brian O'Connell

NEW YORK (BankingMyWay) – It’s “good news, bad news” opening up the week for the U.S. housing market, as home prices are rising, but delinquent mortgages remain a nagging problem.

Lender Processing Services has the data, and they start with a look at “problem mortgage loans.”

While U.S. residential home delinquencies are down 30% from their January 2010 peak and experiencing a “slight decline” on a month-to-month basis, foreclosures remain at “near historic highs,” according to LPS.

The problem, the firm says, is that there is a direct correlation between mortgage delinquencies and what it calls “problem loans” in particularly hard-hit states.

“The July mortgage performance data shows a continuing correlation between negative equity and new problem loans,” says Herb Blecher, a senior vice president at LPS Applied Analytics. “Nationally, 18% of borrowers who are current on their loan payments are ‘underwater’ (owing more on the mortgage than the home’s current market value), ranging from a low of 0.4% in Wyoming to nearly 55 percent in Nevada. As negative equity increases, we see corresponding increases in the number of new problem loans.”

Plus, the trend in some states is going in the wrong direction, Blecher says.

“In Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than 3% 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,” he says.

According to LPS, the total U.S. mortgage loan delinquency rate is 7.03% this month, a 1.6% decrease from July to August, suggesting that while some states are seeing some toxic delinquency rates, most of the country is seeing stabilization in the mortgage market, especially compared with 2010, when housing was in complete disarray.

That improvement has carried over into U.S. home prices, which LPS sees rising 4% from the start of January.

As of June, the last month LPS vetted, the average U.S. home prices was $203,000 – an 0.7% rise from May, and about 1% higher than June 2011.

LPS adds that the U.S. housing prices have a long way to go before coming close to their decade-long highs, with prices down 23.5% from that high in 2006. That said, the trend may be glacial, but home prices are advancing. According to LPS, the average home price in January stood at $195,00, so a June number set at $203,000 represents solid improvement.

State-wise, Alaska, Massachusetts, Nevada and Rhode Island saw the biggest improvement in home prices, while Oklahoma, Virginia and Pennsylvania saw the lowest rate of growth (all under 1%).

Consequently, while growth rates are slow, at least housing prices are moving in the right direction, and that counts as good news for long-struggling U.S. homeowners.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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