The drastic decline in home prices is being blamed for the increase in the number of homeowners who owe more on their mortgages than the real market value of their bank foreclosed house.

This development, called “underwater” posed another challenge to the efforts of the Obama Administration to strengthen and stabilize the housing market.

Falling home prices, which is a major contributor to affordable housing, may benefit first-time homebuyers and some who previously could not afford to purchase a bank foreclosed house. However, falling home prices are a bane to existing homeowners who find themselves saddled with properties that are worth less than their mortgage.

And a low market value means troubled homeowners find it hard to get a refinancing or sell their distressed houses. If the home prices will continue to decline, fewer distressed homeowners would qualify for the Obama Administration’s scheme to stabilize and strengthen the housing market.

Under the housing recovery plan, about 5 million homeowners can refinance their loans only if they are insured or owned by government-supported mortgage companies, Federal National Mortgage Association and Federal Home Loan Mortgage Corp. and the mortgage is up to 105 percent of the total value of the property.

According to market data, the number of homeowners whose mortgages are greater than the value of their homes, increased to 20.4 million in the first quarter of this year, from about 16.3 million in the fourth quarter of 2008. The first quarter 2009 figures represented 21.9 percent of the total homeowners, a jump of 17.6 percent in the last quarter and 14.3 percent in the third quarter of 2008.

Meanwhile, homeowners who are underwater are less likely to take advantage of another government housing recovery scheme which is to provide incentives to lending companies to encourage them to modify loans to make the monthly mortgage payments more affordable.

According to independent housing economist Thomas Lawler, homeowners who owe 30 percent more than the worth of their bank foreclosed house would most likely abandon their properties than those borrowers who are 5 or 10 percent underwater and who expect home prices to rebound.

Additionally, one in every 10 homeowners with a loan owed 110 percent more than the value of their properties in the last quarter of 2008.