One in five US homes underwater, putting more pressure on banks


As housing prices continue to fall and more and more homeowners are faced with negative equity or "underwater" positions, banks that hold second mortgage and equity line portfolios may soon feel a crushing blow. reported today that 21.8 percent of all U.S homes -- more than 16 million residences -- owed more on their home than the home was worth. Some say Zillow's computations are a bit high, but even Moody's puts that number at 14.8 million underwater as of the end of March.

How does this impact the banks and credit unions? All banks and credit unions that hold second mortgages or equity lines on homes underwater are likely to lose a large portion if not all the money at stake. When a bank forecloses on a house underwater, the back taxes get paid first, then the first mortgage hold gets paid. The holder of a second mortgage or equity line only gets paid only if there is money left over.