Home prices fell 1.1% from August to September according to CoreLogic. From September 2010, home prices declined 4.1 percent. These numbers include distressed sales, short sales and foreclosures.

The continued decline in prices caused more American borrowers to fall into a negative equity position, in which they owe more than their home is worth. These “underwater” mortgages are a particular drag on the housing market because it can cause foreclosures, depress consumer spending, and trap potential home buyers and sellers in place.

CoreLogic estimates that 14.6 million borrowers are in a negative equity position. However, as CNBC’s Diana Olick points out, the “effective” negative equity is a lot higher and has hit around half of US homeowners.  This refers to borrowers with so little equity in their homes that they cannot afford to move.  In practice, this means that the negative equity target would be 85 percent (not 100 percent), to give the individual homeowner enough room to pay the realtor, sell the house, and put a down payment on a new property, and all without going out of pocket. 

In other news, Freddie Mac sustained a $4.4 billion loss in the third quarter, and will seek $6 billion in additional funding moving forward.  As the mortgage finance company is government owned, this $6 billion would come from US taxpayers. 

If you recall, Freddie Mac and Fannie Mae were taken over by the government in September 2008 to help avoid collapse.  The companies faced insolvency as mortgage losses piled up.  The government moved to take over the company and shore up finances to protect from the chaos that the failure of the biggest mortgage holders in the US would cause.  Taxpayers have paid the price.  Freddie Mac has drawn $72.2 billion from the government since it was taken over in 2008.