Underwater Homes Hold Steady but Likely to Increase

CoreLogic's negative equity, or underwater homes, data was just about flat at the end of the second quarter of 2010 compared to the first quarter -- from 11.2 million homes underwater in the first quarter of 2010 to 11 million in the second quarter. There's another 2.4 million borrowers with less than 5 percent equity, so if home prices take a dip as foreclosures mount and homes sales plummet, the third quarter could again see an increase in the number of homes with negative equity.

Foreclosures, rather than meaningful price appreciation, drove the change in negative equity. Negative equity means that a person owes more on his mortgage than the home is worth. With nearly 28 percent of all residential mortgages in a negative equity or near-negative equity position, the potential for additional foreclosures is still great. In fact, Deutsche Bank expects that 20 million homes will be underwater by the end of 2011.

"Negative equity continues to both drive foreclosures and impede the housing market recovery. With nearly 5 million borrowers currently in severe negative equity, defaults will remain at a high level for an extended period of time," said Mark Fleming, chief economist with CoreLogic.