This happens for a few reasons, but the most common reason is falling home prices caused by the housing bubble burst and the recession that we've been experiencing for the past few years.
When home prices fall below the amount that people owe on their mortgage, it's virtually impossible for homeowners to sell their homes.
In these cases, homeowners can't even refinance because a bank won't give them a loan based on the home value and the high dollar amount of the loan.
Some homeowners default on these home loans, leading to foreclosure, while others negotiate a short sale with banks so they can sell the home for less than they owe on the mortgage.
While it's good news for homeowners that underwater mortgages are slowing down, it's not good news for potential home buyers.
During the housing market bust of the past few years, home buyers have benefited from underwater mortgages.
Many buyers have purchased homes that were in default or foreclosure due to an underwater mortgage, and gotten great deals on the homes.
Buyers have also benefited from short sales, in some cases buying a home far below its value because the bank would rather recover a portion of the loan's value than none at all in the event of a default.
The decline in underwater mortgages is bad news for potential buyers, because it means there are likely to be fewer great deals on foreclosed homes and short sales in the coming months and years.
It's a sign that the real estate market is finally beginning to right itself after the decline of the past few years, but it's also a sign that potential buyers should buy sooner rather than later if they want to find a good deal.
Don't want to miss out on the possibility of getting a great deal on buying a home? Join Our Buyers List, and we can help you find some of the good deals both locally and nationally that are still popping up - before they disappear altogether!