Louisiana, Kentucky, and Mississippi topped the list of states with the highest share of “seriously underwater” mortgages—properties with loan balances exceeding their market value by at least 25 percent—real estate analytics company ATTOM said in a June 20 statement.
In Q1 2025, 2.8 percent of mortgages nationwide were classified as being seriously underwater, up from 2.5 percent in Q4 2024.
“Louisiana remains the state with the highest percentage of seriously underwater mortgages, though the percentage improved from 11.3 percent to 10.5 percent from Q1 2024 and Q1 2025,” said the statement.
“In Louisiana, one in every 10 mortgages are seriously underwater,” ATTOM added. “The counties with the highest percent of mortgages seriously underwater are Vernon, Saint Martin, Iberville, and Webster.”
The rate of such mortgages in Kentucky and Mississippi was 7.3 percent and 6.6 percent respectively.
As with Louisiana, the rate dipped in both these states on an annual basis.
Virginia had the lowest level, where only one in 51 mortgages are considered underwater. This was followed by Alaska and Vermont.
Underwater mortgages pose various challenges to homeowners, like difficulty in selling, said an April 25 report from Rocket Mortgage.
People typically use sale proceeds from their current property to pay the down payment on their next house. But in the case of underwater homes, there isn’t enough money to pay off the existing mortgage. The owner has to cough up additional funds for the balance amount.
This impacts their ability to make the down payment on their next home. Moreover, refinancing an underwater mortgage can be quite difficult, said the report.
While the rate of “seriously underwater” mortgages rose in Q1, the share of residential properties considered “equity-rich” dropped quarter-wise, ATTOM said in a May 8 statement.
Equity-rich homes have loan amounts that make up only up to half of the estimated market value of the properties.
In Q1, 46.2 percent of mortgaged residential properties in the United States were considered to be equity-rich, down from 47.7 percent in Q4, 2024.
Despite the drop, ATTOM CEO Rob Barber said the dip in the proportion of equity-rich homes “shouldn’t cause too much concern.”
“Home equity rates are near their highest points in recent years,” he said. “In each of the two previous years, the first quarter marked the lowest point of the year before the proportion of equity-rich homes shot back up in the second quarter.”
Dealing With Underwater Mortgages
According to a June 2024 post by financial services company Lending Tree, people with underwater mortgages have a few options to handle the situation.
First, they can check whether any lenders offer debt restructuring that would modify the loan terms or temporarily allow deferring monthly payments. This could make the mortgage more manageable.
Another option is to file for bankruptcy to liquidate any assets that could resolve the debt. The downside of this option is that bankruptcies negatively affect credit scores.
Homes that are underwater are also at a greater risk of foreclosure. When homeowners stop making payments for a certain period of time, lenders repossess the property and sell it off to recoup the loan amount.
Foreclosure filings had risen by 11 percent in Q1 compared to the previous quarter, according to an April 11 statement from ATTOM.
The rise in underwater mortgages and foreclosures is happening amid expectations that home values would decline this year.
In a June 12 statement, real estate marketplace Zillow predicted home values to dip by 1.4 percent, attributing the fall largely to an increase in housing inventory.
“Elevated mortgage rates and concerns about a weakening labor market are expected to continue holding some buyers back. Despite sellers returning to the housing market this year, sales are expected to lag, putting downward pressure on prices,” Zillow said.
