A report from real estate research firm CoreLogic has documented what many credit unions have already discovered: a homeowner that has taken out a second mortgage on their home is significantly more likely to owe more on their home than it is now worth.
Credit unions have often faced increased risks of foreclosures from this phenomenon as the lender on the original mortgage which the homeowner then supplemented with another mortgage from another lender.
The credit union faces a foreclosure when the homeowner cannot pay make payments on the two notes or walks away from the property entirely.
Second mortgages also tend to make short sales significantly more complicated and less likely, according to real estate experts.
According to the report from CoreLogic, 38% percent of home owners who took out second notes on their property are now in a negative equity position on the debt while only 18% of home owners who did not take out a second note are in a similar position.
The Santa Ana, Calif., firm added that over 40% of current homeowners overall have taken out second notes on their homes.
Further, a second note makes the negative equity position significantly worse, the report found.
"Not only does the incidence of home equity loans raise the probability of a negative equity position, but it also raises the severity of that position,” the firm wrote. “A negative equity borrower without home equity loans is upside down by an average of $52,000, versus an upside down average of $83,000 for a negative equity borrower with home equity.”