The foreclosure crisis is far from over and the situation could worsen if home prices continue to decline, according to data from a housing and mortgage trends report released by the real estate and financial information firm CoreLogic.
Nearly one in four borrowers, or 11 million people, owes more on their mortgage than what their home is worth, according to the report. Together, these borrowers have $750 billion in negative equity. Of that total, $60 billion is in the process of foreclosure.
That means the majority of underwater borrowers have stayed current on their mortgages.
But the likelihood that these borrowers will end up defaulting is increasing as home prices continue to decline and homeowners are unable to refinance or modify their loans.
"Price movements have large impacts on new delinquencies and prices are currently declining," the report says.
Once an underwater borrower falls behind on payments and is 90 days or more past due, the chances of bringing that loan current are slim.
CoreLogic tracks the "seriously delinquent transition rate," or the rate at which loans that are 90 days delinquent transition into a more severe delinquency level, rather than being resolved.
In 2008/2009 the seriously delinquent transition rate reached 71 percent. The rate dropped in mid-2009 as the volume of loan modifications increased but CoreLogic says the rate is beginning to spike again in cases where borrowers are deeply underwater.
"The impact of modifications is beginning to fade and moving forward, the unresolved question is will transition rates revert back to the pre-modification levels?" questions the report.
It seems like it. Seriously delinquent transition rates have been increasing when the borrower is underwater or has less than 20 percent equity in the home, according to CoreLogic.
In 2010, about 39 percent of loans were originated with a down payment of less than 20 percent, the report shows.
Regulators recently proposed a rule that would require lenders to keep a 5 percent stake in a mortgage loan when they sell the loan. Loans that meet certain requirements, including a proposed 20 percent down payment, would be considered a Qualified Residential Mortgage and be exempt from the rule.
But at this point, a 20 percent or even 10 percent down payment regulation could devastate the housing market.
"While clearly higher down payments are necessary and will reduce longer-term risk, using the consensus 20 percent down payment scenario, will lead to more sluggish sales in some states in the short-term," according to the report.