There are more underwater borrowers than CoreLogic (CLGX) previously reported after revising its valuation methods, but the number is on the decline.

Roughly 11.4 million borrowers owe more on their mortgage than their home is worth as of March 31, or 23.7% of the entire market, according to the new report. This dropped 5.7% from the revised 12.1 million in negative equity at the end of last year, which was more than a quarter of all homeowners.

CoreLogic previously reported 11.1 million underwater borrowers in the fourth quarter, based on the old model. The new methodology selects the most appropriate automated valuation model for a market and adjusts it to current sales activity.

The analytics firm also limited the amount of properties to those valued between $30,000 and $30 million to reduce highly fluctuating estimates in the old model.

Of those in negative equity during the first quarter, nearly 2 million are only 5% underwater, meaning if home prices continue increasing over the next year, they could rise into positive equity based just on a recovering market.

But roughly 11% of the negative equity borrowers are severely underwater, meaning they owe more than 25% more on the mortgage than the home is worth.

The Federal Housing Finance Agency continues to deliberate on whether to allow Fannie Mae and Freddie Mac to participate in a principal reduction program from the Treasury Department, but it would only cover roughly 700,000 underwater borrowers at the very most.

More servicers are using principal reduction on modification in order to combat the negative equity problem that keeps many borrowers from selling their home and drives some to strategically default.

Below is a break down of negative equity share in each county. (Click to expand.)

As a percentage of the mortgage market, the 23.7% of borrowers who are underwater, is the lowest level since early 2009, according to CoreLogic revised data. Markets such as Nevada, where 61% of the borrowers are still underwater, are showing the fastest signs of recovery.

"This is a meaningful improvement that is driven by quickly improving outlooks in some of the hardest hit markets," said CoreLogic Chief Economist Mark Fleming. "While the overall stagnating economic recovery will likely slow housing market recovery in the second half of this year, reducing the number of underwater households is an important step toward reducing future mortgage default risk."

jprior@housingwire.com

@JonAPrior