A number of recent studies have documented the correlation between negative home equity and the incidence of defaults. A report by CoreLogic released in February stated that when negative equity exceeds either 25% of a loan's balance or $70,000, "homeowners begin to default with the same propensity as investors."
While the linkage between the two factors is fairly clear, the full nature of the relationship between homeowner equity and credit performance is quite complex. The impact of weak underwriting has often been masked by rising home prices. Struggling borrowers have often been able to sell their properties rather than go into default, which minimized defaults and investor losses. An example is the 2000 vintage of prime Jumbo loans.