18% of Homeowners with Mortgages Underwater

First American CoreLogic, representing direct mortgage data on 80% of all US mortgages, released its August 2008 LoanPerformance Home Price Index (HPI). This data release, unsurprisingly, revealed that housing prices continue to descend across the nation with very few exceptions. In aggregate US home prices are 11.3 percent lower than a year ago--putting 18 percent of homeowners with mortgages "underwater."

As gloomy as that might sound real estate is still a local market. The aggregate is heavily skewed by a few large effectors. Metropolitan areas like Los Angeles, Oakland, Riverside, San Diego, CA; Miami, FL; Las Vegas, NV; and Pheonix, AZ all hover around 25 percent home value declines in the last 12 months. Meanwhile, areas like Salt Lake City, UT and several Texas cities, Dallas, Houston, and Austin continue to appreciate in small percentages.

Consequently, 60 percent of all homeowners that are "underwater" on their mortgages are concentrated in 5 states: California, Florida, Nevada, Michigan, Georgia.

However, even if the mortgage problem is concentrated in a few states the scope is massive, with nearly 4 million homeowners expected to face default in the next year according to some estimates.

This is the premise behind the anticipated nationwide loan modification program being negotiated between FDIC, US Treasury, and the White House. This program is expected to help 3 million homeowners avoid foreclosure and would likely be the most effective plan yet to put a floor on falling housing prices.

Meanwhile, new mega-mortgage players like Bank of America and now JP Morgan are already underway with their massive loan work-out programs. Bank of America announced an $8.4 billion loan modification program earlier this month. And JP Morgan Chase has just launched their version--$70 billion in mortgage and 400,000 homeowners are expected to get foreclosure and mortgage relief.

The outstanding question is when will the help come and will it come soon enough. Economists like Nouriel Roubini an economics professor at New York University, and noted seer of the current mortgage meltdown believe that housing prices are headed to 40 percent declines under their peek.

Hope for a recovering housing market may still be months away. However, programs to stem foreclosures, keeping homeowners in their homes, and depreciated homes of the market is potentially the soundest solution.