As of March 2008 an estimated 8.8 million borrowers, 10.8% of all homeowners, had
negative equity in their homes, a number which was believed to have risen to 12 million
by November 2008. By June 2009 the US Government Accountability Office had discovered
through research conducted in 16 metropolitan areas that the percentage of nonprime borrowers
with negative equity ranged from about 9% (Denver, Colorado) to more than 90% (Las Vegas,
Nevada).11 As of the third quarter of 2010, it was estimated that almost 11 million mortgages
or 22.5% of all mortgage holders owed more on their mortgage than the properties were worth,
with another 2.4 million mortgages approaching negative equity.12
Borrowers in this situation had an incentive to “walk away” from their mortgages and
abandon their homes, even though doing so would damage their credit rating for a number
of years. As the number of foreclosures grew, the supply of homes increased creating even
greater downward pressure on house prices and the number of homeowners with negativity
equity grew, creating a negative or downward spiral.