Most distressing if accurate: House-Price Drops Leave about 20% of U.S. Homeowners Underwater on Their Mortgages

From The Wall Street Journal:

The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration's efforts to stabilize the housing market.

The increase in the number of such "underwater" borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates.

For instance, fewer will qualify to take advantage of a key component of the Obama administration's plan to stabilize the housing market. Under the plan, announced in February, as many as five million homeowners whose loans are owned or guaranteed by government-controlled mortgage giants Fannie Mae and Freddie Mac can refinance their mortgages, but only if the mortgage loan is a maximum of 105% of the home's value.

Government officials are considering an increase in that limit.

Borrowers who owe far more than their home is worth may also be less likely to participate in another part of the government's housing plan, which provides incentives for mortgage companies to modify loans to make payments more affordable.

There are some recent indications that the housing market could be beginning to stabilize.

Just how many borrowers are underwater is a matter of some dispute, with the answer depending in part on assumptions regarding home values and mortgage debt outstanding.