A major provider of mortgage data said Tuesday that the percentage of "underwater" homeowners -- people who owe more than their homes are worth -- is significantly lower than the firm had previously reported.
First American CoreLogic said it changed its methodology to take into account two things that the firm's previous data hadn't reflected: how much of a loan's principal had been paid down, and how much of a home equity line of credit was actually being used.
The result: The owners of 23% of all mortgaged residential properties had negative equity in their homes 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, CoreLogic said. Under the old method, 32.2% were underwater in the second quarter.
The change in methodology caused California's numbers to tumble as well, although it still has far more underwater borrowers than most states.
The corrections may cause some head-scratching and hand-wringing among fair-lending groups and in legislative hearing rooms, where CoreLogic's numbers have 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.
A representative of the center cited CoreLogic figures on underwater loans in testimony in March before the House Financial Services Committee.
Although the upside-down phenomenon may be less prevalent than it appeared three months ago, that doesn't mean the revised data are comforting. To the contrary, they show that:
* The owners of nearly 10.7 million U.S. residential properties with mortgages were underwater as of September, with an additional 2.3 million homeowners having equity of less than 5%.
* Among the states, California has the fifth-largest level of negative equity, with 35% of homeowners upside down. CoreLogic's flawed second-quarter report put that figure at 42%.
* States with even higher rates of negative equity, according to Tuesday's report: Michigan (with 37% of homeowners underwater), Florida (45%), Arizona (48%) and Nevada (an eye-popping 65%).