The percentage of U.S. homeowners with so-called "underwater mortgages" dropped in the second quarter as more homes entered the foreclosure process - even as price declined slowed, according to, a real estate Web site.

Underwater mortgages refers to when the amount owed on the mortgage exceeds the home's value. A drop in the number, despite how it occurred, is thought to be a positive for the housing market because it could mean fewer defaults and foreclosures down the road.

The percentage of American single-family homes with mortgages in negative equity, according to the Zillow Real Estate Market Reports, fell to 21.5% in the second quarter from 23.3% in the first quarter and 23% a year ago, Reuters reported today.

Underwater mortgages are troublesome for homeowners because negative equity leaves many unqualified for home loan refinancing and keeps some from being able to sell. Negative equity is wiped out through the foreclosure process, but at the cost of a homeowner losing their home.

In the second quarter, U.S. home values were down 3.2% year-over-year - the 14th consecutive quarter of year-over-year declines - and also dropped 0.6% quarter-over-quarter, to $182,500, according to the Zillow Home Value Index.

Foreclosures reached a new peak in June, with more than one out of every 1,000, or 0.11%, U.S. homes being foreclosed upon in the month - the highest since Zillow began recording national foreclosure data in 2000. For more than one-fourth, or 26%, of home sales nationwide, the home sold for less than what the seller originally paid.

Foreclosure re-sales fell in June, making up 16.9% of all U.S. home sales during the month, down from a 2010 high of 19.8% in February.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry