High level of negative equity could underscore credit risks

Lenders in the volatile housing market continue to extend loans with caution, given the precarious nature of real estate in America today. Data shows more homeowners are re-focusing on paying down debt and rehabilitating weak credit scores, but negative equity remains a persistent threat on the market’s overall vitality.

Mortgage industry data firm CoreLogic released data earlier this month that showed an improvement in the number of underwater homes nationwide during the second quarter of 2012. More than 10.8 million homeowners owed more on their mortgage than their homes were worth during that time of the year, a figure which represented 22.3 percent of the U.S. housing market.

That was down from 23.7 percent – 11.4 million properties – in the first quarter of 2012, the firm reported. Twenty-seven percent of U.S. homeowners were either underwater on their mortgage or on the cusp of it during the spring months, said the report, which was down from 28.5 percent in the previous period.

CoreLogic chief economist Mark Fleming said the figures represented more evidence of the nation’s “nascent housing recovery,” and indeed, an improving housing market could present new opportunities for lenders assessing new opportunities. Access to critical portfolio data through sophisticated portfolio management software could offer these businesses the insight needed to identify these opportunities.

At the same time, the 10.8 million figure begs caution of lenders who wish to evaluate new applicants for credit extensions. In the interest of improving business insight, many lenders today continue to seek alternative data sources to develop a more complete picture of an applicant’s creditworthiness, making an investment in credit application processing software a prudent one for many banks.

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