None other than Barclays Capital warned Tuesday that roughly half of all subprime and Alt-A borrowers in the U.S. could soon owe more than their house is worth, or have extremely minimal equity left — a problem that is imperiling more homeowners in the States than mortgage rate resets, which have received far greater press coverage. Continued price declines are likely to put as much as $800 billion worth of debt at risk, Bloomberg reported:

Subprime loans from 2006 and 2007 that exceed the value of the homes jumped 5 percentage points to 19.8 percent in the fourth quarter, and may reach 26 percent by midyear if prices drop at the same pace, Barclays analysts wrote in a report yesterday. Alt-A loans, a grade better than subprime, would grow to 23 percent from 16.3 percent … Among two-year-old Alt-A mortgages that are underwater, 33 percent are at least 60 days late, the analysts wrote. That compares with 7 percent delinquency on similar loans in which homeowners have equity of at least 20 percent. For corresponding subprime loans, the delinquency rate is 58 percent for underwater debt and 29 percent where equity exceeds 20 percent.

Sources suggested to HW that the Barclay’s study is the first to attempt to quantify the so-called “walking away” problem that has many lenders and analysts concerned. In particular, New York-based analysts Ajay Rajadhyaksha and Derek Chen at Barclays wrote that the problem is already larger than statistics might otherwise suggest:

Many of the loans are in areas where prices are falling faster than the U.S. average, so the size of the shift is underappreciated, New York-based analysts Ajay Rajadhyaksha and Derek Chen wrote … “Mortgage loans are moving underwater at a very sharp pace, far more than suggested by aggregate home price data,” they wrote.

In particular, by “aggregate home price data,” the analysts were referring to OHFEO’s conforming home price index — the index shows both more moderate gains and losses relative to other indices, such as the S&P/Case-Shiller HPI, which is weighted more heavily towards non-conforming loan products and is less geographically dispersed.. Standard & Poor’s said earlier on Tuesday that the Case-Shiller numbers indicated in a record state of price decline in key metro areas during February.