1 Out Of 4 Homeowners Underwater

Mortgage rates and delinquency rates continue to rise in America. The number of homeowners "underwater" -- those owing more on their mortgage than the home is worth -- now stands at roughly 11 million, about a quarter of all mortgage holders, according to real estate research firm First American CoreLogic. This number is expected to rise.

There is a belief by many that analyze the housing industry for a living that negative equity is the single most important driver of defaults. Negative equity has made managing a mortgage a real financial hardship. It is also one of the culprits for why the Federal government mortgage modification program to fix the housing problems in the country has been unsuccessful.

Lowering principal appears to be one of the best ways to fix the housing crisis in America. The government has been reluctant due to moral hazard. This is when people enjoy the fruits of their actions without having to suffer any of the consequences so they do it more.

The Obama administration is probably scared of the political fallout if people believe that their neighbors have been bailed out while they are struggling financially. It then becomes an issue of unfairness. The truth is that after bailing out Wall Street which could end up costing trillions to the U.S. taxpayer, the moral hazard issue should no longer be used.