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"11.3 million homeowners underwater on mortgage" by Rex Nutting, MarketWatch (February 23, 2010):

http://www.marketwatch.com/story/
113-million-homeowners-underwater-on-mortgage-2010-02-23

"WASHINGTON (MarketWatch) -- More than 11.3 million homeowners -- nearly one-fourth of all Americans with a mortgage -- owe more on their loan than their home is now worth, according to a report released Tuesday by FirstAmerican CoreLogic.

More than 10% of people with mortgages owe 25% more than their home is worth.

The number of underwater mortgages increased by about 620,000 from the third quarter, the firm said. Another 2.3 million mortgages had less than 5% equity in their home, which could be wiped out if home prices fall further.

In the fourth quarter, national home prices fell 1.1% compared with the third quarter, Standard & Poor's reported in a separate report on Tuesday. See full story on Case-Shiller home price index.

Once the mortgage is underwater, owners cannot easily sell their home or refinance their loan.

Underwater mortgages are concentrated in few states: California, Florida, Nevada, Arizona, Michigan and Georgia. In Nevada, 70% of mortgages were underwater. In California, more than a third of mortgages were underwater.

'The rise in negative equity is closely tied to increases in pre-foreclosure activity,' CoreLogic said. Once a homeowner owes 25% more than the house is worth, foreclosure rates rise sharply.

Negative equity exceeded 25% in six states and topped 20% in six others."

Here's an idea: Why not let Uncle Sam reimburse homeowners for their negative equity losses caused through no fault of their own - but to the inherent faults of a Fed-controlled and manipulated housing market?

Maybe that would be a better use of the so-called "bail-out" funds.

- Ed Smith, Publisher
The EHS Letter Manual