Oops: Mortgage data firm overestimated ‘underwater’ loans

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Here’s one for the Department of Major Pullbacks: First American CoreLogic reports today that the percentage of homeowners who are ‘underwater’ on their mortgage debts -- they owe more than their house is worth -- is significantly lower than the data provider previously reported.

In reality, the only thing that has changed is how CoreLogic comes up with its negative equity figures.


In a news release, CoreLogic says it has tweaked its computers to take into account two things that the firm’s data hadn’t reflected: how much of a loan’s principal has been paid down, and how much of a home equity line of credit is actually being used.

The conclusion: 23% of all residential properties with mortgages were underwater in the third quarter. That’s far below the 33.8% that would have appeared to be upside down on their loans using the old formula, the data firm says. California’s numbers tumbled too, although it still has far more underwater borrowers than most states.

The corrections may cause some head-scratching and hand-wringing in newsrooms, at fair-lending groups and in legislative hearing rooms, where the CoreLogic data has been widely cited as an indicator of the severity of the mortgage meltdown. Testimony to Congress, for example, may have been overstated.

The Center for Responsible Lending, a nonprofit advocacy group, has used the CoreLogic data periodically, according to the group’s director of California operations, Paul Leonard.

In one example, the center’s Caryn Becker cited CoreLogic figures on underwater loans in testimony last March before the House Financial Services Committee. Check out footnote No. 10.

‘I have looked at these data more closely than my colleagues back east because of the concentrations here in California,’ Leonard told me in an e-mail. ‘Oops.’

That’s not to say that the revised data are comforting. To the contrary, they show that:

-- Nearly 10.7 million of U.S. residential properties with mortgages were underwater as of September, with an additional 2.3 million mortgages having less than 5% equity.

-- Among the states, California has the fifth-largest percentage of homes with negative equity, with 35% upside down. CoreLogic’s flawed second-quarter report put that figure at 42%.

-- States with even higher rates of negative equity, according to today’s report: Michigan (with 37% underwater), Florida (45%), Arizona (48%) and Nevada (an eye-popping 65%).

-- E. Scott Reckard