No, this isn't about global warming and rising oceans. Homeowners are underwater on their mortgages.

About 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.

It's amazing to see 50% more home mortgages go underwater in just 6 months!

Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The decline has left about 20.4 million of the U.S.’s 93 million houses, condos and co-ops with loans higher than the properties are worth. The gain in underwater homeowners will lead to more bank repossessions, Zillow said.

Many owners “would be more willing to bear the financial consequences of bankruptcy or foreclosure,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “You are going to continue to see home prices fall for the rest of this year and some portion of next year.”

The recession cut home values by $2.4 trillion last year, First American CoreLogic said in a March 4 report. More than 8.3 million U.S. mortgage holders owed more than their properties were worth and an additional 2.2 million borrowers will be underwater if prices decline another 5 percent, the Santa Ana, California-based seller of mortgage and economic data, said in the report.

I think it's already written in stone that homes prices will fall at least another 5 percent before this housing bust is over. Therefore, it is a given that underwater mortgages will increase another 25%.

Why does this matter? Because negative equity is the leading cause of foreclosures.

A related article came out today. It seems the housing bust is working its way up the food chain.

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Connecticut. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
...
“There was this unrealistic view that the crazy financing was limited to subprime when of course it was across the board,” said Andrew Laperriere, Washington-based managing director at research firm International Strategy & Investment Group. “A lot of jumbo mortgages were nothing down with high debt-to-income ratios.”

Of course simple math will tell you that it takes far fewer problem homes at the upper-end of the market to cause the same problems that the subprime collapse caused.

And finally, another article today brings us to the logical conclusion from the housing bust.

(Bloomberg) -- Most U.S. banks expect loan delinquencies and losses to increase this year, a Federal Reserve report showed today before this week’s release of stress tests of the nation’s 19 largest lenders.

More than 70 percent of respondents on net said bad loans will rise should the economy progress “in line with consensus forecasts,” the Fed said in a quarterly survey of banks’ senior loan officers....

“The vast majority of domestic and foreign respondents indicated that they expect deterioration in credit quality for all types of business and household loans,” today’s Fed report said.