1.1M Homeowners Are Underwater Again: What to Do

You’ve probably heard the phrase “underwater mortgage” and assumed it was a 2008 relic.

It’s not.

New data shows negative equity is rising again - not everywhere, not for most homeowners, but enough to matter in specific metros and newer loan vintages.

Sources: This post references ICE’s February 2026 Mortgage Monitor, MarketWatch’s coverage, and ATTOM’s Q4 2025 equity report (linked below).

Method note: “Underwater” (negative equity) is different from “seriously underwater” (a deeper negative-equity bucket). I cite both so readers don’t confuse a headline number with the broader market.

TL;DR

• ICE reports 1.1M borrowers ended 2025 underwater - the highest level since early 2018.
• The pain is concentrated: newer buyers, and select markets where prices cooled.
• ATTOM shows 3.0% of mortgaged homes are “seriously underwater” (a stricter definition).
• If you’re underwater: don’t panic - your best option depends on whether you have to move.

What “underwater” actually means (fast)

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You’re underwater when:

• Mortgage balance > home value

That creates one big problem:

• Selling becomes expensive because you may need to bring cash to close (after commissions + fees).

What’s driving the rise (according to the data)

ICE’s Mortgage Monitor says negative equity is increasing modestly and is concentrated in recent vintages and certain Southern markets, with notable concentration among FHA and VA loans originated in 2022 or later. (ICE source in References.)

MarketWatch highlights similar themes and names specific metros where the share of underwater mortgages is higher than average. (MarketWatch in References.)

This is not a national crash - but it is a real problem in pockets

ATTOM’s Q4 2025 report shows:

• 44.6% of mortgaged homes are “equity rich”
• 3.0% are seriously underwater (loan balances >= 125% of estimated value)

That’s why both things can be true:

• “Most owners still have lots of equity”
• “A meaningful number of newer owners are getting squeezed”

If you’re underwater, here are your options (ranked by “least painful”)

Option 1: Stay put (if you can)

If your payment is manageable and you don’t need to move, time is often your friend.

Do this:

• stop obsessing over weekly estimates
• focus on cash reserves + job stability
• avoid taking on new high-interest debt

Option 2: Rent it out (only if the numbers work)

This depends on your local rent and the true all-in cost (mortgage + taxes + insurance + maintenance).

Option 3: Bring cash to close (only if you must move)

Sometimes the cleanest move is still to sell - but plan for:

• agent commissions
• seller concessions
• closing costs
• payoff amount

Use your own scenario:

• Rent vs Buy Calculator
• Affordability Calculator
• Compare Cities

Option 4: Ask about a short sale (high friction, last resort)

Short sales are slow and credit-impacting, but they can be a path if the alternative is worse.

A quick “reality check” if you’re worried you’re underwater

Run these three numbers:

1. Current payoff (ask your servicer)
2. Realistic sale price (use comps, not hope)
3. All-in selling cost (commissions + fees)

If (sale price - selling costs) < payoff -> you’re underwater.

Conclusion

The headline is scary, but the story is clearer:

Negative equity is rising in specific places and among newer buyers, while the broader market still has substantial equity overall.

If you’re underwater, the decision isn’t “panic or ignore” - it’s:

• Do I have to move?
• Can I stay long enough for equity to rebuild?
• What’s my lowest-regret option if I need flexibility?

Related reading

• Builder Confidence Fell Again - Translation: Incentives Aren’t Going Anywhere

• Zillow: Affordability Improving — What Changed

• Why Inventory Is Tight in 2026 (Not Just Rates)

• Affordability Calculator

• Rent vs Buy Calculator

• Compare Cities