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Emerge from an underwater mortgage

Date posted:  3/3/15 07:30:00 AM More families across the country are gaining equity in their homes.

When the economy hit its lowest point during the Great Recession several years ago, many homeowners across the nation faced difficult times. The burst of the housing bubble caused home values to plunge, and property owners from all walks of life fell underwater on their mortgages as homes lost equity.

But the housing market has made some positive strides since then, and while there are still plenty of underwater homeowners who owe more on their mortgages than what their homes are worth, many families are emerging from financial danger thanks to rising home equity. CoreLogic, a leading global real estate information firm, reported 1.2 million American borrowers garnered improved home equity in 2014. The rise in in value helped push the total residential mortgage properties with equity to 44.5 million in the fourth quarter of 2014, which is nearly 9 of 10 of the nation's mortgaged properties.

The good and the bad
While the rise in equity is great news for underwater families and the nation's economy as a whole, 5.4 million homes are still in a position of negative equity. While the 10.8 percent of underwater homes is a far cry from the 18.9 percent seen a year ago, negative equity is still a problem to be wary of because it keeps borrowers from putting their homes on the market due to the fiscal losses the sellers would take.

Anand Nallathambi, CoreLogic's president and CEO, said it's a tough situation, but his firm expects the number of families to emerge from underwater mortgages to increase in the years to come.

"Negative equity continued to be a serious issue for the housing market and the U.S. economy at the end of 2014, with 5.4 million homeowners still 'underwater'," Nallathambi said in a release. "We expect the situation to improve over the course of  2015. We project that the CoreLogic home price index will rise 5 percent in 2015, which will lift about 1 million homeowners out of negative equity."

A problem with the housing market
While first-time homebuyer demand is starting to gain steam, the available stock of lower-priced homes is making it difficult for young adults and new buyers to get into the market.

As CNBC reported, borrowers who are underwater on their mortgages are usually forced to hang on to the property to avoid major losses, but many of those with negative equity own homes that appeal to first-time buyers.

Owners of less expensive homes are three times as likely to find themselves underwater on a mortgage compared to owners of expensive homes, according to CoreLogic. Despite the lack of inventory for affordable properties, CNBC said builders are placing an emphasis on creating additional higher-priced homes because of better profit margins.

Should I pay or should I go now
For those facing the unfortunate task of dealing with an underwater mortgage, the best idea is to determine if staying in the home and paying monthly payments is financially smart. Staying and paying can be a wise decision if the surrounding market is on the rise and impending home values are likely to increase. But sometimes, it's just better to cut the loss.

"I am spending a lot of energy talking people out of homes on which they are spending too much money and have no hope of having any equity in for at least a decade," Cathy Moran, a bankruptcy attorney, told Credit.com.

Moran said underwater homeowners should compare the monthly mortgage payment along with other costs, such as repairs, insurance and taxes, to the cost of renting.

"If that investment (the home) is in a black hole, you might as well flush $20 bills down the toilet," she said.