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November 16, 2011

23 Percent of Homeowners Underwater
A new report shows that nearly a quarter of homeowners in the US are underwater in their mortgages, owing more on the loan the the home is worth. Many analysts expect this trend to fuel an increase in the pace of foreclosures, as homeowners unable to sell or refinance choose to walk away rather than continuing to sink money into a bad investment. Banks are already seizing homes at about twice the pace they were last year, and the number of homeowners behind by at least two payments grew higher this month for the first time in two years.

The increase in underwater borrowers was caused by a backlog of foreclosures sparked by the robo-signing scandal and ensuing slowdowns in the process. Several major US lenders were accused last year of robo-signing, or having employees sign off on hundreds of documents a day without verifying their contents. The banks voluntarily halted home repossessions, and slowed down the process considerably when they resumed.

As a result, a large number of the underwater borrowers should have defaulted months ago, but the banks are working through backlogs of delinquent mortgage holders and will likely take another year or two to get caught up. Of all major US cities, Phoenix Arizona has the highest percentage of its homeowners underwater, at about 65 percent, while more are underwater than above it in Atlanta, Riverside, California, Tampa Bay and Sacramento.

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