30% of mortgages are underwater

By Les Christie, staff writerFebruary 9, 2011: 10:48 AM ET

NEW YORK (CNNMoney) -- Sometime, somehow, the foreclosure crisis will ease. But probably not anytime soon.

Home prices dropped 2.6% nationwide during the last three months of 2010, pushing more borrowers underwater, according to a quarterly real estate market survey from Zillow.com.

Now 27% of homeowners with mortgages owe more than their homes are worth. That's up from 23.2% a quarter earlier.

That will surely lead to higher foreclosure rates soon. That's because being underwater is second only to unaffordable payments in leading to foreclosure, according to Zillow's chief economist, Stan Humphries.

Additionally, the report found that more than one-third of all homes were sold at a loss in December. That trend has been on a steady uptick for the past six months, as homeowners try to find ways around foreclosure or out from under their homes.

The so-called events of the fall also forced the number of underwater mortgages higher.

When banks' foreclosure paperwork came under scrutiny, many halted all repossessions until they could straighten things out. With foreclosures no longer being cleaned out of the system, more homes stayed underwater rather than moving on to foreclosure.

The moratoriums have been only temporary, however, and the defaults that had been stopped up in the foreclosure pipeline could come out in a gush over the next few months.

And any bump in the number of foreclosures adds to the likelihood that more homes will be dumped onto an already bloated market. That would just further depress home prices, continuing the vicious cycle that has plagued the industry for several years. 

First Published: February 9, 2011: 5:30 AM ETRight Now

Sponsored by: President proposes his 2012 budget: Deep cuts will help slow deficits in the next 10 years but the plan fails to address long-term problems. Jacob Lew, director of the U.S. Office of Management and Budget, says 'we have to make tough tradeoffs' in the president's budget. President Obama's new budget would eliminate or reduce funding to a total of 200 government programs for savings of $33 billion in 2012 alone. 

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30 yr refi	5.05%		4.98%
15 yr refi	4.31%		4.21%

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President of the ING Foundation says it is important to share who you are and what you value for a great business career. Hewlett-Packard unveils its upcoming webOS tablets and says the software will soon run on its PCs as well. Want to float 80 feet in the air as you dine with 22 of your closest friends this Valentine's Day? Dinner in the Sky can make it happen. 

Markets	Last	Change	% Change
	12,267.51	-5.75	-0.05%
	2,817.18	7.74	0.28%
	1,332.23	3.08	0.23%
	3.61	-0.03	-0.88%
	1.35	-0.01	-0.54%

Data as of 4:00pm ET

Company	Price	Change	% Change
	4.90	0.02	0.41%
	18.82	0.12	0.64%
	14.93	0.16	1.08%
	16.07	-0.31	-1.88%
	11.64	0.31	2.77%

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