Short Sale Commander Blog

From Housingpredictor.com

By Mike Colpitt

From Housingwire.com

By: Kerri Panchuk

The government’s revamped mortgage refinance program may be somewhat of a boon to the hardest-hit housing markets because they have the largest share of borrowers in negative equity, but the plan isn’t a panacea for all that ails the housing market, CoreLogic (CLGX: 12.02 -1.23%) said Monday.

“Time will reveal the true impacts of HARP 2.0, but it is certain that many more borrowers will benefit than would have otherwise,” CoreLogic wrote in its report. “The impacts will be targeted to housing markets and local economies that are the hardest hit by the housing collapse, as these are the markets with the largest shares of insufficient and negative equity borrowers.”

The real estate data and anlaytics firm warned HARP 2.0 fails to address two of the issues plaguing the housing market today: the number of distressed borrowers and the nation’s shadow inventory.

The program is limited in that it helps certain areas of the market and provides a boost to the government-sponsored enterprises. The reason for this is the fact that refinanced Fannie or Freddie mortgages reduce the default risk for the GSEs, as well as future delinquency risks.

For example, Florida and Nevada, two of the states with the highest levels of homeowners in negative equity, stand to gain disproportionately compared to stronger markets. Nevada and Florida rank 1st and 3rd for the highest levels of negative equity, 60% and 45% respectively, and account for 2.3 million, 21%, of the underwater mortgages nationally.

“In those same two states, the share of loans that are current in the GSE portfolio is significantly lower than in the overall GSE portfolio. Florida and Nevada loans in the GSE portfolio are current at rates of 85% and 87% respectively, while the GSE average is approximately 93%,” said the report.

CoreLogic said about 2 million new transactions will enter refinancing after HARP 2.0.

“With the origination market estimated to be between $1.1 trillion to $1.2 trillion for this year and assuming similar volumes next year, the effect of HARP 2.0 could be a 15% boost in volume next year that would otherwise have been unlikely to happen,” CoreLogic wrote. “Of course, any increase in mortgage rates in 2012 or 2013 will dampen the impact.”

Despite some of the positive impacts of the plan, CoreLogic noted that the program will not significantly reduce strategic defaults.

“This is because the program only offers the potential of lower payments but doesn’t reduce principal, so borrowers will continue to hold mortgages that are significantly higher than the values of their homes,” according to CoreLogic.

And since borrowers have to be current on their existing loans to qualify for HARP, the program will not reduce shadow inventory levels.

“Therefore, there is little direct and immediate benefit to the impacted housing markets in the near term or to the borrowers who are already delinquent. Benefits of HARP 2.0 will be longer term in the form of reduced, new distressed assets,” the company said.

From Housingwire.com

By: Jon Prior

A group of 33 senators sent President Obama a letter Thursday asking his administration and the Federal Housing Finance Agency to expedite pending plans for selling and renting previously foreclosed homes held by the government.

Sens. Jack Reed (D-R.I.), Bob Menendez (D-N.J.) and banking committee chair Tim Johnson (D-S.D.) led the letter.

“We urge you to analyze, quickly and diligently, the input you have received so that all REO properties under your control may be best managed to produce the most value for Fannie Mae, Freddie Mac, and FHA,” the senators wrote. “As part of this analysis, we ask that you also keep in mind the importance of looking for the most effective ways to stabilize neighborhoods and housing values.”

In August, the White House sent a request for information from the housing industry, looking for new strategies to help these agencies better manage the supply of more than 90,000 REO homes currently on the market.

Along with the plan to boost refinancing for underwater borrowers, the Obama administration is looking for local ways to alleviate this influx of inventory.

The size of the Fannie Mae foreclosure inventory alone grew to 162,489 in 2010 from 25,125 three years earlier.

Even more troubling are the 10.4 million mortgages set to default, according Amherst Securities analyst Laurie Goodman.

The senators asked for a deadline to review the RFI submissions and if there are any strategies surfacing at the moment. They also asked what the next step would be.

“Foreclosures have taken a heavy toll on too many Americans,” the senators wrote.

From Bloomberg.com

By Kathleen M. Howley

U.S. home prices may get a boost from an unlikely source: a pickup in sales of properties in default before they reach the stage where they are repossessed by the bank and sold.

There has been a “dramatic shift” in banks’ willingness to sell a property for less than the mortgage balance to avoid foreclosing, said Ron Peltier, chairman and chief executive officer of HomeServices of America Inc., the second-biggest U.S. residential brokerage.

The transactions, known as short sales, typically change hands at a discount of about 20 percent to homes not in financial distress, compared with a 40 percent price cut for bank-owned homes, according to RealtyTrac Inc. Short sales jumped 19 percent in the second quarter from the prior three months while foreclosure sales were flat, the data seller said.

“Banks have become much more supportive of short sales,” said Peltier, whose Minneapolis-based company is a unit of Warren Buffett’s Berkshire Hathaway Inc. “That’s better for the lenders, who have smaller losses on a short sale, and it’s going to be better for homeowners, who won’t have as much psychological distress as a foreclosure.”

Distressed sales brokered by HomeServices used to be 60 percent foreclosures and 40 percent short sales, Peltier said in an interview at Bloomberg headquarters in New York. Now, that ratio has flipped, according to the CEO, whose company is second in size to NRT LLC, a unit of Realogy Corp. in Parsippany, New Jersey, that owns the Coldwell Banker brand.

Default Backlog

“There’s a huge backlog of homes in default that the banks want to get rid of,” said Thomas Popik, research director for Campbell Surveys in Washington. “They don’t want to be homeowners.”

Banks are being more agreeable to short sales as foreclosures slow following a yearlong probe of so-called robo- signing, or pushing through unverified default documents. Foreclosure filings have fallen for 12 straight months through September as banks work through a backlog of paperwork, according to RealtyTrac.

Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors. While short sales were flat compared with a year earlier, the trade group’s count only includes deals completed with a broker, and short sales often are handled directly with lenders.

Quicker Approvals

Banks are not only approving more short sales, they’re doing it in less time. In the second quarter, short-sale homes, also known as pre-foreclosures, sold an average 245 days after default, down from 256 days in the previous period, according to Irvine, California-based RealtyTrac. That reversed three straight quarters of increases.

The time frame remains a lot longer than traditional sales. In a normal transaction, a buyer bids on a home and gets a decision from its owners within days, if not hours. Getting a bank response to a short-sale offer can take two months or more.

“No matter how streamlined a short sale may be, it’s always going to be a frustrating experience,” Popik said. “Too many people are involved — investors, servicers, owners, real estate brokers, mortgage insurance companies.”

Half of troubled mortgages have so-called second liens, such as home equity lines of credit, according to the Treasury Department, so there may be two mortgage holders with a stake in a short sale. If the property has mortgage insurance, that company may be involved in the negotiations as well.

Neighborhood Values

Because short sales typically are occupied soon after the deal, neighboring properties take less of a hit in values, according to Popik. Prices for distressed homes often are used by appraisers to gauge surrounding values, even if the nearby homes aren’t in default. Also, owners who voluntarily give up their homes tend to leave them in better shape than people who are evicted, reducing costs for banks, he said.

“Anytime a short sale can be substituted for a foreclosure, it’s going to prop up prices and it’s going to cut losses because it’s going to sell for more,” he said.

Home values have declined 31 percent in the last five years, according to the S&P/Case-Shiller index of values in 20 U.S. cities, as competition from foreclosures pressures sellers to lower their asking prices. The resulting crash was worse than the 27 percent plunge in values during the Depression, said Stan Humphries, chief economist of Zillow Inc., a Seattle-based real estate information company.

Underwater Borrowers

The drop in home values has pushed almost a quarter of U.S. mortgage borrowers underwater, meaning their debt is more than their homes are worth, according to a report by CoreLogic Inc. (CLGX), a real estate data company in Santa Ana, California. That so- called negative equity prevents owners from conducting traditional deals because they would have to pay the difference between their loan balance and the sale price.

Short-sellers can negotiate with banks to forgive the unpaid portion, according to Steve Beede, an attorney in Fair Oaks, California, who specializes in dealing with loans in default. Even if they succeed, a second-lien holder in most states can pursue people for mortgage-payoff shortfalls, he said.

Banks are starting to “get their act together” with short sales, said Cameron Novak, a broker with The Homefinding Center in Corona, California. The company handles about 15 of the transactions a month, he said.

“There’s been improvement in the last few months, and response times are getting to be a little quicker,” Cameron said in a telephone interview. “It’s about time.”

From DSNews.com

By: Carrie Bay

Bank of America has begun a pilot program in Florida offering extra incentive payouts to distressed homeowners who agree to and successfully close on a short sale.

Incentive payments for relocation assistance range between $5,000 and $20,000. The program is being offered on a limited basis for investor-approved, pre-offer short sales.

Bank of America is calling it a pilot “test-and-learn” program.

A spokesperson for the bank explained that Florida is experiencing higher foreclosure rates than other parts of the country, and is therefore seen as a “viable market to gauge incremental short sale response and completion rates when presenting homeowners with relocation assistance at closing.”

If successful in Florida, Bank of America says the “test-and-learn” could be expanded to other states.

The short sale must be initiated between September 26 and November 30, 2011 and close by August 31, 2012.

Florida homeowners who qualify for the “test-and-learn” program will receive a solicitation mailer directly from Bank of America, or may learn about the program if they are working with a real estate agent who handles pre-approved short sales for BofA.

The bank has a dedicated team of short sale specialists standing by to help agents determine if their homeowner client qualifies for the short sale relocation assistance at: 877.459.2852.

Bank of America has already been offering short sale payouts in the state of Florida, albeit for smaller amounts.

Susie Kirkland with RE/MAX Southern Realty in Destin says she’s closed five transactions within the past couple of months through what BofA calls its Cooperative Short Sale Program. The bank awarded Kirkland’s short sellers $2,500 upon closing.

BofA is even extending short sale incentives to some investors. Steve Kravitz of Bankers Realty Services, Inc. in Fort Lauderdale just completed a short sale transaction last week on an investment property. BofA offered the non-occupant owner/seller $3,600.

Kravitz says his client had been late on a few payments, but there was no foreclosure filing on the property. BofA and other lenders are looking to short sales earlier on in the process, and getting ahead of the foreclosure crisis in areas where the system is already bogged down with distressed properties.

“We’ve had cases here where we’ve gotten short sales through where there haven’t even been any late payments at all,” Kravitz said.

Kravitz says short sales just make sense for a market as hard-hit as Florida. Not only can a short sale be more cost efficient when lenders are facing a foreclosure timeline of nearly two years, but it “gets more product and better product out to buyers.”

He explained that oftentimes, a foreclosure property can sit vacant for more than a year, whereas with a short sale, the home is typically occupied up until a week or a few days prior to changing hands, which translates to a better quality home in better shape.

Kravitz says banks are becoming “more cooperative” and approving short sales more quickly. The investment property short sale Kravitz closed last week took just 45 days.

Other lenders are also extending incentive payouts to short sellers in Florida and some other hard-hit states such as California.

In July, DSNews.com reported that Wells Fargo, JPMorgan Chase, and Citi were all offering extra relocation assistance to borrowers opting for a short sale in certain markets.

Robert Valenzuela with Century 21 Schwartz Realty in Key Largo, Florida, says he’s completed six short sale transactions in which the seller was given money to help with relocation, the largest of which was a $45,000 payment from Chase Bank.

We’ve all dealt with 2nd mortgages, and they continue to be an issue for anyone negotiating short sales.

Let’s take a look at the ‘mentality’ of what a junior lien holder is facing, and why this remains a challenge. They don’t have any equity backing their loan, they can’t foreclose on the home (technically they can, but they don’t) and the seller usually doesn’t have any money to bring to closing. So they’re backed into a corner.

Now let’s look at some things in your favor…

The 2nd Mortgage really doesn’t have a lot of options. If the 1st forecloses, then the 2nd Mortgage will get wiped out completely. At least with a short sale, the 2nd gets $1,000-$3,000 typically, and sometimes more depending on if the 1st allows it.

Also, the 2nd mortgage just needs the same paperwork that you’ve submitted for the 1st mortgage, with their loan information on each page. The last thing is that most of the time the house is so upside down (ie: negative equity) that they don’t do an internal BPO or fight your offer price.

So with all of the above, successfully negotiating with 2nd mortgages comes down to:

1) Get the 1st to pay as much as possible to the 2nd. The more they pay, the better your chances are of having a closing. Here’s a quick example: Ask the 1st to give the 2nd $5,000, then ask the 2nd to accept $1,000. If either of them take it, or meet in the middle, then you can have your closing.

2) Get the 2nd a clean short sale package, with their loan number on every page…and their own forms filled out. In Short Sale Commander, we have most of the main 2nd mortgage short sale forms in our Auto Forms tab. These auto-populate so it gets through their red tape faster. Also, you can build the 2nd Mortgage short sale package in about 1 min, with the 2nd mortgage loan number on every page.

3) Set proper expectations with the seller. Too many agents don’t do this at the listing. The thought of telling the seller they may need to bring some money or sign a promissory note to settle the 2nd never crosses their mind. Here’s what you can do: Explain to them that they have a $75,000 problem on their hands that they’d like you to help them out with. You’ll do everything you can to get it taken care of, but if they have to bring $1,000-$2,000 to closing or sign a much reduced note to get out of $75,000 debt, are they willing to do that?

From Inman.com

By Andrea V. Brambila

SAN JOSE, Calif. — For real estate professionals, short sale and foreclosure transactions can be fraught with legal hazards, and it’s important to choose your clients wisely, according to Stella Ling, managing senior counsel of the California Association of Realtors who spoke at the annual California Realtor Expo Thursday.

Short sales and REOs (real estate owned properties) accounted for nearly half of all California home sales in August, according to CAR. Last month also saw a surge of default notices nationwide, with California experiencing a 55 percent month-to-month rise — a sign of more distressed property sales to come.

Handling distressed properties, especially short sales, can take an inordinate amount of time and effort, and for this reason, Ling recommended real estate professionals learn to target consumers who are most likely to lead to successful transactions. Some knowledge of distressed property laws can help in that selection process, Ling noted.

Short sales

Because short sales have a success rate of only about 50 percent, “the best thing to do is to prescreen the short-sale listings,” she said. “There is no better way to ensure your short-sale listings will go smoothly.”

She added, “You want to cater your farming efforts to the most likely candidates for short sale vs. foreclosure. You’re looking for homeowners who have refinanced in the mid-2000s.”

Prescreening means steering clear of listings where a second trustee lender can come back for a deficiency through judicial foreclosure or won’t be likely to agree to a short sale, checking to see if the seller has a verifiable hardship, and whether the seller has considered bankruptcy. If the seller ends up filing for bankruptcy before the close of escrow, the listing agent is likely out of luck, Ling said.

“The bankruptcy attorney usually has their favorite agent who they like to work with,” she said.

An agent can look out for clues to whether a seller is likely to file for bankruptcy — tens of thousands of dollars in credit card debt, for example, Ling said.

A recent danger is that a seller will try “reverse staging,” which means the seller will trash the property in order to knock down its value. An agent should make sure the seller didn’t do the damage and back off from the transaction before becoming further entangled, Ling said.

“If a seller does reverse staging, destroying their own home, what else are they going to do? What other misrepresentations are they going to make?” she said.

Reverse staging also constitutes “waste,” which exposes the seller to liability, she added.

One pitfall agents should look for is a lender asking for money from sellers in order to approve a short sale. That’s a violation of recently enacted law.

In that case, “obviously, you don’t make a decision. You have to leave it up to your seller to decide what they’re going to do,” Ling said.

Agents should also keep in mind that it’s legal for lenders to ask for contributions from buyers to approve a short sale, she said.

Can a lender pursue a borrower for a deficiency after a short sale in California? No matter how many times the Internet may say otherwise, “California is not a nonrecourse state. There is the possibility of personal liability and deficiency judgment in the state of California,” Ling said.

A nonrecourse state is one in which a lender cannot pursue a borrower for a deficiency — the difference between what’s owed on a mortgage loan and what the lender receives as a payoff after a short sale or foreclosure. In California, lenders cannot pursue a homeowner of a one- to four-unit dwelling for deficiency after a short sale or a nonjudicial foreclosure.

However, borrowers who have refinanced or who bought a non-owner-occupied home and go through the judicial foreclosure process are not protected against deficiency. While judicial foreclosures are very rare in California, it is up to the lender — not the borrower — to choose either judicial or nonjudicial foreclosure, so borrowers have to decide whether to take the risk, Ling said.

For potential clients unsure of whether to proceed with a short sale vs. a foreclosure, there are at least a couple of arguments in favor of short sales, Ling said.

According to FICO, a consumer with a starting FICO credit score of 720 will see his or her score drop by 130 to 150 points after a foreclosure. By comparison, that consumer’s score will drop 95 to 115 points after a short sale. FICO spells out this and further mortgage delinquency scenarios in a blog post.

“You can print it out and hand it to your clients,” Ling said. “You don’t want to vouch for what FICO is saying but you can (give) them the information.”

Minimum waiting periods before borrowers are eligible for a Fannie Mae loan after a foreclosure or short sale also favor short sales somewhat. Homeowners who went through a foreclosure and did not strategically default have to wait three years, compared with two years, under certain circumstances, for those who went through a short sale.

REO transactions

Questions about REO transactions on CAR’s legal hotline have picked up of late, Ling said.

She advises agents to read the REO addendum that lenders often add to purchase contracts on REOs. The addendum often erodes the rights of buyers, Ling said.

A common complaint on the hotline is that listing agents will sometimes not submit buyers’ offers to lenders. Listing agents sometimes do this in the hope that one of their own buyers will submit an offer and they’ll be able to collect a commission on both sides of the deal, Ling said.

Multiple listing service rules require listing brokers to present offers as soon as possible or give the cooperating broker a satisfactory reason for not doing so, Ling said. MLS rules also allow buyer’s agents to participate in the presentation of any offer, unless the seller objects and submits a letter to the buyer’s agent to that effect.

Buyer’s agents should quote those rules and demand that letter if the listing agent objects to the buyer’s agent being present when the listing agent presents the offer, Ling said.

And, “if the listing agents aren’t following the rules, you have to file a complaint about it. If there’s enough complaints that are filed, maybe some of these practices will go away,” she added.

Tenant issues

Now that more and more troubled homeowners are turning into landlords, problematic tenants can be an issue, Ling said. In that case, listing agents should make clear that they are not responsible for property management duties such as maintenance or changing locks, she said.

“If you’ve got a problematic tenant, when the homeowner hires an unlawful detainer attorney, (the attorney and owner) are going to second-guess everything you’ve done along the way. They want a clean (case) … so you’re going to look really bad in front of your seller” if you’re causing difficulties in evicting the tenant, Ling said.

CAR offers distressed property resources at qa.car.org and shortsalescalifornia.org.

From Housingwire.com

By: Jon Prior

Michigan-based Realcomp II, a multiple-listing service and data provider for half of the state, will participate in a Fannie Mae program to speed up stalled short sales.

Realcomp II collaborated with Fannie on the pilot Short Sale Assistance Desk to help close cases of extended response times from servicers or where the mortgage insurer or investor places a condition the borrower cannot meet.

“We are pleased to be the first MLS in Michigan to make this program available to our Realtor subscribers to provide them with a way to jump-start short-sales that have stalled,” said Realcomp CEO Karen Kage. “Collaborating with Fannie Mae on the initial pilot program, and then seeing the results of these efforts come together for the benefit of our customers and consumers is truly gratifying.”

The Desk will only consider issues that arose on loans owned by Fannie Mae after an offer was submitted on the property. Post-offer issues often relate to the existence of a second lien and issues involving mortgage insurance. Short sales are eligible for help from the Desk if the servicer has not responded within 20 days, a final valuation within 30 days of the offer or a final decision within 60 days of the offer.

Realcomp stressed that real estate agents and counselors make a reasonable effort to resolve issues by working with the servicer first. The MLS members can only submit a case for review only if all “actionable” requests have been met.

Servicers experienced a 70% loss rate on REOs sold in the middle of 2011, compared to less than 60% for short sales, according to Moody’s Investors Service. But the process is difficult. With so many parties involved, short sales can often span several months to close.

Since September 2010, roughly 8,856 short sales sold through the Realcomp MLS. As of Wednesday, the Realcomp MLS had 7,055 short sales on market.

“We are committed to helping homeowners avoid foreclosure whenever possible,” said Fannie Mae Vice President Marcel Bryar. “The Fannie Mae Short Sale Assistance Desk helps real estate professionals resolve any issues that they may encounter during the review and approval process. The goal of the Assistance Desk is to clear the way for more short sales and make the process more efficient.”

Improving access to affordable mortgage financing for qualified home buyers and investors and committing additional resources to loan modifications and short sales will help reduce current and future inventories of real estate owned (REO) properties held by government agencies, according to the National Association of REALTORS®.

In a letter sent today to the U.S. Department of Housing and Urban Development, the Federal Housing Finance Agency, and the U.S. Department of the Treasury, NAR responded to the agencies’ recent request for input and offered its recommendations for selling REO properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.

In its letter, NAR urged the agencies to create an advisory board as they explore new options for selling foreclosed properties to ensure that efficiently disposing of agency REO properties will minimize taxpayer losses and reduce the negative effects that distressed properties have on local real estate markets.

“As the leading advocate for housing issues, REALTORS®know that foreclosures affect families, communities, the housing market and our nation’s economy,” said NAR President Ron Phipps. “We believe the government has an opportunity to minimize the impact of distressed properties on local markets by expanding financing opportunities, bolstering loan modifications and short sales efforts, and enhancing the efficient disposition of REO properties. This will help stabilize home prices and neighborhoods and help support the broader economic recovery.”

Phipps said that the lack of available and affordable mortgage financing is hurting REO sales and the entire housing market, and urged increased consumer and investor lending. While NAR supports strong underwriting standards, the lack of private capital in the mortgage market, unduly tight underwriting standards, and increasing fees have discouraged many potential home buyers from applying for mortgages. NAR believes ensuring mortgage availability for qualified home buyers and investors will help absorb the excess REO inventory.

To prevent further REO inventory increases, NAR also recommended that the agencies take more aggressive steps to modify loans and, when a family is absolutely unable keep their home, to quickly approve reasonable short sale offers that allow families to avoid foreclosure. Phipps said that while federal programs have been put into place to help keep families in their homes, many of these have fallen short of expectations, and advocated that those resources be applied toward modifying loans and expediting short sales, which are typically less costly than foreclosure.

“Loan modifications keep families in their home and reduce defaults, while short sales keep homes occupied, helping stabilize neighborhoods and home values,” Phipps said. “Expanding resources and ensuring the use of already allocated funds for pre-foreclosure efforts is the best opportunity to reduce taxpayer costs and creates more positive outcomes for homeowners and their communities.”

NAR’s letter also outlined concerns about proposals to pool large volumes of REO properties for bulk sales. While these types of transactions may help quickly alleviate high REO inventories, taxpayers would be required to accept larger losses than are necessary. Phipps said that efforts should be made to incentivize individual versus bulk sales, except in small geographic areas that meet certain criteria, since selling in bulk to large national investors puts a large section of the housing market into the hands of fewer market participants and puts individual home buyers and sellers at a disadvantage.

He also said the success of any bulk sale programs should be determined by the stabilizing effect the program has on a locale and whether it maximizes value to taxpayers. Maximizing the recovery on the agencies’ assets will depend on how property valuations are determined and that those valuations are accurate, appropriate, and reflective of market conditions, such as the valuations available through the Realtors Property Resource™, an NAR subsidiary.

NAR is also concerned about proposals that include lease-to-own elements. Phipps said that agency policies should first be focused on keeping families in their homes through loan modifications or short sales if that’s a better option, and that the agencies should not expedite foreclosures so that those properties could be included in a lease-to-own program. He added that any lease-to-own programs should not be administered by the government, but instead should include the participation of local investors or nonprofits that can manage the specialized needs and challenges of the local market.

“REALTORS® welcome the agencies’ desire to receive input and ideas to help address their REO inventory. We look forward to serving on any advisory board and working together with agency staff, real estate professionals, property managers, and others with extensive real estate industry experience to develop sound strategies and solutions to ongoing REO issues,” said Phipps.

Source: NAR

From Housingwire.com

By: Jon Prior

Nearly 11 million properties, roughly 22.5% of all U.S. homes, were worth less than the underlying mortgage in the second quarter, according to CoreLogic (CLGX: 11.63 +1.93%).

The percentage of properties in negative equity declined slightly from 22.7% the previous quarter and down from 24% one year ago. Another 2.4 million borrowers held less than 5% equity in their home, what analysts call near-negative equity. CoreLogic also showed nearly three-quarters of all underwater borrowers are paying above-market interest on their home loans.

“High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” said Mark Fleming, CoreLogic chief  economist.

More borrowers could be in danger of falling underwater. JPMorgan Chase (JPM: 32.89 +1.45%) analysts expect home prices to drop another 5% by the beginning of 2012, pushing the amount of underwater borrowers to 15 million, according to a research note released earlier in the month. If prices drop more, possibly 10% further, the number of borrowers in negative equity would approach 20 million.

The Obama administration continues working on a proposal to boost refinancings, which many include eliminating some negative equity restrictions on Fannie Mae and Freddie Mac loans. Some analysts believe such a program would have only modest impact, but CoreLogic showed nearly 28 million outstanding mortgages hold above-market rates and, in theory, should be able to refinance.

Of these, 8 million borrowers are in negative equity.

Some believe the new plan from the administration will be a revamp of the Home Affordable Refinance Program, which allows Fannie and Freddie borrowers with up to 125% LTV to refinance.

But more than 40% of borrowers with LTVs above that limit are trapped with mortgage rates above 6%. Only 17% of borrowers with positive equity have rates at that level.

Negative equity also affects sales. Traditional home sales in areas with low negative equity numbers dropped 61% since the peak in 2005, compared with an 83% drop in areas with more underwater borrowers.

Roughly 60% if borrowers in Nevada were underwater in the second quarter, the highest percentage of any state but down from 68% one year ago. It was followed by Arizona at 49% and Florida at 45%.

“The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices,” CoreLogic said.