hardship, or because mortgage payments increase. And second (in the opinion o many, now the more important actor), the home’s value becomes less than the debtowed—in other words, the borrower has negative equity.“The evidence is irreutable,” Laurie Goodman, a senior managing director withAmherst Securities, told Congress in : “Negative equity is the most importantpredictor o deault. When the borrower has negative equity, unemployment acts asone o many possible catalysts, increasing the probability o deault.”
Ater alling rom their peak in to the spring o , home prices haverebounded somewhat, but improvements are uneven across regions.
Nationwide,. million households, or . o those with mortgages, owe more on their mort-gages than the market value o their house (see fgure .). In Nevada, o homeswith mortgages are under water, the highest rate in the country; in Caliornia, therate is .
Given the extraordinary prevalence and extent o negative equity, the phenomenono “strategic deaults” has also been on the rise: homeowners purposeully walk away rom mortgage obligations when they perceive that their homes are worth less thanwhat they owe and they believe that the value will not be going up anytime soon.By the all o , three states particularly hard hit by oreclosures—Caliornia,Florida, and Nevada—reported some recent improvement in the initiation o oreclo-sures, but in November Nevada’s rate was still fve times higher than the national av-erage. Foreclosure starts climbed in states rom their levels a year earlier, with thelargest increases in Washington State (which has . unemployment), Indiana(. unemployment), and South Carolina (. unemployment), according to theMortgage Bankers Association.In Ohio, the city o Cleveland and surrounding Cuyahoga County are bulldozingblocks o abandoned houses down to the dirt with the aim o creating a northeasternOhio “bank” o land preserved or the uture. To do this, authorities seize blightedproperties or unpaid taxes, and they take donations o homes rom the Departmento Housing and Urban Development, Fannie Mae, and some private lenders.
Now,the county fnds itsel under increasing duress, having endured , oreclosures in.
Ater years o high unemployment and a ragile economy, the fnancial crisistook vulnerable residents and “shoved them over the edge o the cli,” Jim Rokakis,Cuyahoga’s treasurer, told the Commission.
In a spring survey, o the responding mayors ranked the prevalence o nonprime or subprime mortgages as either frst or second on a list o actors causingoreclosures in their cities. Almost all the mayors, , said they expected the ore-closure problems to stay the same or worsen in their cities over the next year.
“There has been no meaningul decline in the inventory o distressed propertiesound in the housing market,” Guy Cecala, the chie executive and publisher o InsideMortgage Finance Publications, told a congressional panel overseeing the TroubledAsset Relie Program in October . “It is hard to talk about any recovery o thehousing market when the share o distressed property transactions remains close to percent.”