Falling home prices left nearly one in four U.S. homeowners with mortgages owing more than their homes were worth at the end of 2009, according to a new report from First American CoreLogic.

There were 11.3 million homes "underwater" at the end of the year — 24 percent of all residential properties with mortgages — up from 10.7 million or 23 percent of loans at the end of the third quarter, First American CoreLogic said.

The net increase in the number of negative equity borrowers in the fourth quarter was 620,000, with the largest percentage increases occurring in Nevada, Georgia and Arizona.

Nevada had the highest percentage of negative equity, with 70 percent of all of its mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent). Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining 45 states.

In terms of raw numbers, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages, accounting for 4.6 million, or 41 percent, of all negative equity loans.

Nationwide, more than 10 percent of homeowners with a mortgage had negative equity of 25 percent or more — meaning their loan-to-value ratio (LTV) was at least 125 percent.

Negative equity is "a major factor" in homeowner default, First American CoreLogic said. When LTV reaches 125 percent or the mortgage balance exceeds a homes value by $70,000 or more, homeowners are just about as likely to default as investors.

More than 50 percent of Nevada homeowners with mortgages had LTVs of 125 percent or more, and about 30 percent of Arizona and Florida mortgage holders were in the same boat. In California, about 20 percent of borrowers had LTVs of 125 percent or more.

"Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners," said First American CoreLogic Chief Economist Mark Fleming, in a press release.

"Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come."

Of the over 47 million homeowners with a mortgage, the average loan-to-value ratio (LTV) was 70 percent. More than 23 million, or 49 percent of all homeowners with a mortgage, have at least 25 percent equity in their home, and more than 12 million have at least 50 percent equity in their home.


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