One Quarter of All Borrowers Have Underwater Mortgages

New data shows that 23 percent of homeowners who have mortgages are underwater. According to this data, released by First American CoreLogic – a real estate information company based in Santa Ana, Calif. – this percentage equals 10.7 million households that have negative equity.

Home Prices Continue to Drop

According to data from First American, 5.3 million U.S. households are tied to mortgages that are at least 20 percent higher than their home’s value. This is because home prices are dropping at record rates. J.P. Morgan Chase and Co. recently reported home prices won’t likely see their bottom until 2011.

Lower home prices force more homeowners into negative equity and according to First American those homeowners who owe more than 120 percent of their homes value were more likely to default. As a result, as home prices continue to lower and more borrowers sink underwater, more will probably be walking away from their homes.

What Underwater Mortgages Do to the Market

Having more homeowners walk away from their homes is a big problem in the housing market. The market is already over saturated with foreclosed and abandoned homes, meaning there are too many houses up for sell. And guess what too many houses up for sale and not enough demand for homes does – it drops prices even further. Ultimately, this means the market is now in the midst of a vicious cycle.

What Are Some Solutions?

There are housing programs out there, like the Neighborhood Stabilization Program that is managed by HUD, that were created to help move abandoned or foreclosed homes off the market and into the hands of low-income families in need of quality housing. However, not every state or community is participating. If you are in danger of losing your home or already have, visit your state’s Department of Housing for more information.

Also, there are neighborhood housing organizations out there that may be able to help you make wise decisions regarding your home. Owning an underwater mortgage is definitely a challenge to content with and without help from the government or community organizations, it may be impossible to get back afloat.

Do you currently own an underwater mortgage?