With foreclosures, fewer homeowners underwater in the third quarter of year

NEW YORK -- The number of homeowners who owe more than their houses are worth fell for the third straight quarter this summer.

About 10.8 million households, or 22.5 percent of all mortgaged homes, were underwater in the July-September quarter, housing data firm CoreLogic said Monday. That's down from 23 percent, or 11 million households, in the second quarter.

The decline came mainly because more homes had fallen into foreclosure and not because home prices had increased.

In a healthy housing market, about 5 percent of homeowners with a mortgage owe more than their homes are worth, CoreLogic's economist Sam Khater estimates. The firm does not have historical data before the third quarter of 2009.

The ranks of underwater borrowers will remain high and likely rise because home values are expected to fall through the middle of next year. About 2.4 million hold only 5 percent or less equity in their homes, putting them near the tipping point if prices in their area fall.

Two-thirds of homeowners in Nevada who have a mortgage had negative home equity, the worst in the country. It was followed by Arizona, Florida, Michigan and California.

However, Nevada, Arizona, California and Florida also posted the biggest decline in negative equity, mostly because a high percentage of severely underwater borrowers in those states fell into foreclosure.

Oklahoma had the smallest percentage of underwater homeowners in the third quarter at 6 percent. Only nine states recorded percentages less than 10 percent.

The total amount of negative equity decreased to $744 billion nationwide, down from $766 billion in the previous quarter.