In the fourth quarter of 2009, the number of properties with underwater mortgages increased to about 11.3 million, up from 10.7 in the third quarter of last year. This means that about twenty-four percent of homes have a higher mortgage balance than the property is currently worth, according to a report done by First American Corelogic. The jump between the third quarter and the fourth is roughly 620,000 homes.
Towards the end of last year, there were around two million more properties well on their way to becoming underwater. Many believe we may see the number jump to thirty percent in the next few months. More than ten percent of borrowers owe a whopping 25% more on their mortgages than the current value of their home.
With Obama’s mortgage modification program not offering any type of assistance to homeowners who are underwater on their mortgage, many believe the amount of strategic defaults will continue to rise. A strategic default is the event of a borrower walking away from their home as a business decision, and not because the payments are unaffordable. Once the a homeowner is in this position, it will make it difficult for them to sell the home or refinance the loan.
Default rates are extremely high in hard hit states where the a large percentage of homes are in this position. The state that leads the nation with the highest percentage is Nevada, were a steady 70% of homes remain underwater. Other states that are suffering from this are Arizona (51%), Florida (48%), Michigan (39%), and California (35%). These states have also had an extremely high number of foreclosures over the past year.