Six States Dominate Home Mortgage Mess

New York, NY, Oct. 31, 2008--Nationwide, almost one out of every five homeowners with a mortgage owes more to their lender than their properties are worth.

But it's very uneven across the country.

For example, almost half of Nevada homeowners with a mortgage owe more to the bank than their homes are worth. If you add in the homeowners like them in California, Arizona, Florida, Georgia and Michigan, together they account for nearly 60 percent of all homeowners who are "underwater" on their mortgages.

But if you subtract those states, the rate drops to about one in 10, according to a report released Friday by First American CoreLogic.

The new data underscore the scope of the U.S. housing recession. Some experts predict the problem will get much worse.

Nationally, home prices are already down about 20 percent from their peak in mid-2006. By the time the housing market hits bottom, prices may be down 40 percent from the top, leaving 40 percent of homeowners underwater, according to Nouriel Roubini, economics professor at New York University.

"There is a huge incentive to walk away from your mortgage," said Roubini.

Another pessimistic analyst, Desmond Lachman of the American Enterprise Institute, said that "unless there's government intervention on a big scale...we're really not going to bottom."

The problem is much worse in some suburban neighborhoods where builders flooded the market with new homes and buyers put down small, or no, down payments, said Mark Fleming, First American CoreLogic's chief economist.

Rising mortgage rates are also making matters worse for prospective borrowers. The rate on a 30-year, fixed-rate mortgage averaged 6.46 percent this week, up from 6.04 percent last week, Freddie Mac reported Thursday.

Higher rates coupled with lower home values means fewer people can tap their home equity. The percentage of U.S. homeowners who pulled cash out of their homes remained at a four-year low in the third quarter, Freddie Mac said.

Despite all the pessimism, even some bearish analysts see modest signs of encouragement. Home sales have stabilized this fall as bottom-fishing buyers snapped up bargain properties in places like Las Vegas and Southern California. New foreclosures, currently flooding the market, are likely to taper off by the middle of next year, said UBS mortgage securities analyst Thomas Zimmerman.

"There may be some turning points not that far away," Zimmerman said. "The really severe part of this collapse in the housing market may be behind us."