Once the housing market bottoms out (no, it hasn’t happened yet), the number of mortgages “under water” will be closer to 40% (20 million homes). About 25% of those (5 million) will be upside down to the tune of 30%. Currently 6.4% of mortgages are past due. About 2.8% of mortgaged homes are in foreclosure. Only half of the adjustable rate (and balloon) mortgages have reset, so we have a long way to go yet. These default numbers are very likely to rise significantly. FYI, the 700B bailout will cover roughly 5% of all mortgages.
Those fannie mae geniuses (Rains, Johnson) and politicians (Dodd, Frank, and numerous others) who caused this need to return every penny they took on their way to jail.
And for the record, I absolutely hold a lot of these folks to blame for their own mess, especially subprime, but not all home owners. Some people just bought at the peak and have since lost most or all of their equity. If they aren’t forced to refi, then they should keep their end of the contract by paying on a house they owe more on than it is worth. That’s life. Walking away is not acceptable. However, some folks have balloon mortgages that force a refi. In that case, having negative equity means you have to make up the difference in cash. Most folks don’t have 20-50k in cash on hand, so they will have to negotiate with their lender or walk away.