Risky mortgages:
Some 77% of option-ARM borrowers and 50% of subprime mortgage borrowers were estimated to be underwater as of the first quarter of 2009, according to the Deutsche Bank report.
With option-ARMs, borrowers could make minimum monthly payments that didn't even cover the loan's interest. As the market declined, these balances grew. With subprime mortgages, borrowers often had poor credit scores and little documentation of their financial situation. In both cases, borrowers often ended up with a large mortgage relative to the house's price.
Date of purchase:
Individuals who bought their homes between 2003 and 2008 are at risk of being underwater because they bought while prices were rising, Zandi says. The risk is greatest for those who bought in 2005 and 2006, as the market approached its peak.
Excessive borrowing:
Many individuals borrowed against their homes during the bubble by taking out second mortgages or tapping into home equity lines of credit or home equity loans. This borrowing left their homes with less equity to weather the drop in home values.
Home's location:
The areas that have been hit the hardest by plunging home values include the "sand states" of Arizona, California, Florida and Nevada because they brought the most speculation, easy credit and overbuilding during the bubble, Zandi says. Also hurt: the states where unemployment is especially high and manufacturing jobs have been eliminated like Michigan, Ohio and Indiana, Zandi says.
