At the end of 2008, about 8.31 million properties were underwater according to a study by research firm First American CoreLogic. This was up 9 percent from 7.63 million at the end of September 2008.

This percentage of underwater borrowers increased to 20 percent cpompared to the three months earlier with 18 percent.

If home prices fall another 5 percent, another 2.16 million properties could go underwater, the study shows.

The effect of the market slump has taken its toll on the borrowers especially those who are in the bubble markets such as California, Florida, Arizona and Nevada where home values have shrunk most.

"As of December, home prices are declining in 75% of all metro markets, up from a third of those markets last March," Khater said.

CoreLogic said the value of residential properties fell to $19.1 trillion at the end of 2008 from $21.5 trillion in December 2007. Down $2.4 trillion.

Of the forty-three U.S. states and Washington, D.C. included in the study, California has been most stressed with homes in the state losing more than $1.2 trillion in last year’s housing value which account for half of the national decline.

California also led in the number of underwater borrowers with 1.9 million followed by Florida with 1.3 million then Texas, Michigan and Ohio with 497,000, 459,000 and 435,000 respectively.

The report also showed that the said states cover 62 percent, more than half, of the country's negative equity mortgages.

Home prices show little hope of stabilizing in the near future as demand has not grown to boost prices. "The supply must be whittled down more before prices can begin to stabilize," Kater said.

The bubble states already have shown big increase in the number of underwater borrowers and home values have dropped that only incremental increases is expected over the next few months. Contrary to what can happen to the states that have not recorded big home-price drops where the largest numbers of underwater borrowers is expected to come from.

A borrower who is underwater may qualify for loan modification, where a more affordable amortization plan would be extended. The monthly mortgage payments would be reduced down to 31% of gross income.