The sputtering U.S. housing market will result in more prime borrowers being pushed further underwater on their mortgages, according to Fitch Ratings in a new report.

Recent analysis by Fitch shows that more than a third of all prime borrowers in private-label securitizations are currently in a negative equity position, or as it is commonly referred to, 'underwater', on their mortgages.

Despite some recent modest gains, home prices have further to fall before any sustained recovery takes hold, according to managing director Grant Bailey. "With home prices likely to decline another 10%, roughly half of prime borrowers will wind up underwater on their mortgage," said Bailey.

Fitch also found over 12% of all prime borrowers are seriously delinquent on their mortgages. "Prime mortgage default rates will stay elevated as home prices fall further and unemployment remains high," said Bailey.

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