A short sale is a great option for homeowners that need to sell their homes, but unfortunately owe more on the home than they can sell it for. Even those who ARE NOT delinquent on their mortgage can possibly qualify for a short sale.

More Than One-Fifth of Mortgages Underwater: Report

09/13/2011 By: Phil Britt

10.9 million, or 22.5 percent, of all residential mortgages had negative equity at the end of the second quarter of the year, according to a report released Tuesday by the analytics firm CoreLogic.

The figure is actually a slight improvement from the 22.7 percent of all mortgages with negative equity in the first quarter of 2011.

An additional 2.4 million borrowers had less than 5 percent equity in the second quarter, according to the report, which also shows that nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages.

The states that had the most inflated property values before the housing bubble burst, and Michigan, which continues to suffer from the fall off of the automotive and manufacturing industries, had the highest negative equity percentages.

Nevada held the top position in terms of negative equity with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent), and California (30 percent).

Yet there are some signs that the worst could be over in those states. According to the report, the average negative equity share for the top five states declined from 41 percent to 38 percent during the past year.

Nevada had the largest decline over the last year, with its negative equity share dropping from 68 percent to 60 percent. The reason for the Nevada decline is the high number of foreclosures that led to lower numbers of remaining negative equity borrowers.

“High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” said Mark Fleming, chief economist with CoreLogic in releasing the data.

Fleming added, “The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices.”

According to CoreLogic, 8 million borrowers with negative equity, or nearly 75 percent of all underwater borrowers, have above market rates.

Since the 2005 sales peak, non-distressed sales in ZIP codes with low negative equity have fallen 61 percent, compared to an 83 percent sales decline in high negative equity zip codes.