Six States Lead in 'Underwater' Homeowners

Here's a shocker: almost half of Nevada homeowners with a mortgage owe more to the bank than their homes are worth.

Maria Martinez stands in front of her home Wednesday, Oct. 22, 2008, in Stockton, Calif. John...

Maria Martinez stands in front of her home Wednesday, Oct. 22, 2008, in Stockton, Calif. John McCain and Barack Obama both say they want to lend a hand to homeowners struggling to pay their mortgages, and not just assist teetering Wall Street banks. To do so, they face the daunting task of trying to figure out a way to help people like Martinez of Stockton, Calif, who is three months behind on her mortgage even after receiving a loan modification earlier this year.

(Ben Margot/AP Photo)
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Here's another: 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.

Nationwide, almost one out of every five homeowners with a mortgage owes more to their lender than their properties are worth. 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 staggering scope of the U.S. housing recession, but also the challenges that government officials face in designing a massive new program to help homeowners avoid foreclosure, with layoffs soaring and the economy sinking.

Some experts predict the problem will get much worse.

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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, who has attracted attention for his gloomy — and accurate — predictions of the U.S. financial market meltdown. He gave no forecast for when the real estate market would bottom out.

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 far-flung 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. In desirable urban neighborhoods and close-in suburbs, "a lot of people bought their homes years ago. It's much more difficult for them to be in a negative equity situation." Fleming said.