Nearly 1 in every 4 homeowners owes more on their mortgages than their homes are worth, a serious obstacle to any kind of housing recovery. According to a report from First American CoreLogic, a real estate information company, nearly 10.7 million households are “underwater,” with 5.3 million of those owing at least 20% more than their home’s value. That means another wave of defaults could be around the corner.
It’s “an outstanding risk hanging over the mortgage market,” says First American’s chief economist. “It lowers homeowners’ mobility because they can’t sell, even if they want to move.” Many will simply default instead, flooding an already saturated market. About 588,000 borrowers willfully defaulted last year, even though they could afford to pay.