Report: 'Underwater' Mortgages Will Hit 48 Percent

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Nearly half of U.S. homeowners will owe more than their homes are worth in 2011, Deutsche Bank AG reports.
    
The report estimates 48 percent of U.S. homeowners will be under water on their mortgage by the next two years, which nearly doubles the current 26 percent as of March 31.

"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.

The drop in home prices is creating a cycle of foreclosures as it eliminates equity and gives borrowers motivations to walk away from their mortgages.

The more grim the negative equity, the more likely are defaults, since many borrowers think prices will not recover enough.

Two of the hardest hit states that will be California and Florida, according to the report.
    
In parts of those states, 90 percent of the loans will be for more than the house is actually worth.

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