NEW YORK (CNNMoney.com) -- More bad news on the housing bust front: Nearly 25% of all mortgage borrowers were underwater, meaning they owe more on their loans than their homes are worth.
First American CoreLogic, the research firm that monitors housing equity, reported Tuesday that 11.3 million homeowners -- or 24% of all homes with mortgages -- were underwater as of the end of 2009. That's up from 23% and 10.7 million borrowers three month earlier.
Nevada was the state with the worst record at 70% of all mortgaged properties underwater. That was followed by Arizona (51%), Florida (48%), Michigan (39%) and California (35%).
For many homeowners, being underwater, also know as negative equity, has few consequences. If they're not planning to sell and can afford their monthly bills, they can wait out the downturn.
For others, however, plunging underwater can spell disaster. If they become unemployed or have a financial emergency, they have no equity to tap. Or, if they need to downsize or sell their home to relocate for a job, they can't.
"Negative equity is a significant drag on both the housing market and on economic growth,"said Mark Fleming, chief economist with First American CoreLogic. "It is driving foreclosures and decreasing mobility for millions of homeowners."
Traditionally, being underwater was one of two main factors in determining a borrower's likelihood of foreclosure. The other is having sufficient income to pay bills. But, there's an increasingly important exception: strategic default. As equity gets more and more negative, some homeowners are choosing to quit paying and give the keys to the bank.
As long as negative equity remains a big problem, it will be difficult to stem the tide of foreclosures that continue to plague many local real estate markets around the nation.
"Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come," said Fleming. 
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