When homeowners are underwater, they have unpleasant choices. Their homes are worth less than they owe their lender. So if they decide to sell, they won't make enough on the sale to repay the lender. Somehow they have to come up with extra cash to cover their debt, or they have to negotiate with their lender to have the debt forgiven in a process known as a short sale. And they have trouble buying a new house because they don't have leftover money for the next down payment.