Underwater borrowers often cannot sell their homes as they will not recover enough to repay their loans. This also holds true for "under-equitied" borrowers -- those with less than 20% equity in their home. These borrowers might find it harder to secure a mortgage for their next home without coming up with a 20% downpayment.
A recent study by Zillow estimated that 44% of homeowners with a mortgage can't sell their homes.
CoreLogic' estimates 11.2 million borrowers or 23% of all residential properties with a mortgage are under-equitied. Further, about 2.1 million of these borrowers have less than 5% equity, referred to as "near negative equity."These borrowers are at risk of plunging back underwater if home prices slide.
So home prices need to continue to rise in order to ensure these borrowers are firmly in the black.-- Written by Shanthi Bharatwaj in New York. >Contact by Email. Follow @shavenk