20% of mortgages underwater

CHICAGO — Twenty percent of all mortgaged U.S. residential properties were underwater at the end of December, with mortgage debt greater than what the homes were worth, according to a report released Wednesday by First American CoreLogic.

That's more than 8.3 million mortgages that were upside down at the end of the year, compared with 7.6 million three months earlier. It's a problem that is expected to get worse as home prices continue to fall.

"The accelerating share of negative equity, combined with deteriorating economic conditions, means that mortgage risk will continue to increase until home prices and the economy begin to stabilize," said Mark Fleming, chief economist of First American CoreLogic, in a news release.

First American CoreLogic is a Santa Ana, Calif.-based provider of real-estate data and mortgage analytics.

"The worrisome issue is not just the severity of negative equity in the 'sand' states, but the geographic broadening of negative equity that is expected to occur throughout the year," he added. "Sand" states include California, Nevada, Arizona and Florida.

Nevada was the state with the highest percentage of negative equity. More than half of all mortgage borrowers in Nevada were upside-down on their loans at the end of the year, according to the report.

California ranked first in the sheer number of borrowers with negative equity, with more than 1.9 million borrowers in that position.

Here's why the numbers could get worse: An additional 2.2 million mortgaged properties throughout the country are approaching negative equity, the report found. These properties are within 5 percent of being underwater. And home prices are still dropping in many areas.

Not all underwater mortgages enter foreclosure, but "it's the first requirement for default," said Sam Khater, senior economist for First American CoreLogic, in a phone interview. When you owe more than your home is worth, you're especially vulnerable to foreclosure.

While the Obama administration's new mortgage plan will help some homeowners refinance or receive modifications to help them keep their homes, it probably won't be enough to solve the foreclosure problem, Khater said.