Homeowners with mortgages worth more than the value of their properties fell to 10.8 million, or 22.3 percent of the mortgage market, down from 11.4 million, or 23.7 percent, in the first quarter.
“Surging home prices this spring and summer, lower levels of inventory and declining REO (real estate-owned) sale shares are all contributing to the nascent housing recovery and declining negative equity," said Mark Fleming, chief economist for CoreLogic, in a statement.
During the second quarter, around 600,000 borrowers reached positive equity, bringing the year's total to around 1.3 million. Total negative equity fell to $689 billion from $691 billion in the first quarter.
Most underwater borrowers continued to make mortgage payments, with 84.9 percent remaining current on their payments in the second quarter, up slightly from 84.8 percent in the first quarter.
Nevada, center of a housing collapse, had the highest percentage of underwater mortgages, at 59 percent. Florida was second, at 43 percent, and Arizona was third, at 40 percent.
Homes worth less than $200,000 were 32 percent underwater, while only 17 percent of homes worth more than $200,000 had underwater mortgages.
The report estimated that 1.8 million homeowners had mortgages worth 5 percent more than the value of their homes and could escape negative equity in coming quarters if home prices improved.