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U.S. ‘Underwater’ Homeowners Increase to 28.6%, Zillow Reports

A man exits the front door of a home in Atlanta prior to its public auction. Photographer: Chris Rank/Bloomberg
A man exits the front door of a home in Atlanta prior to its public auction. Photographer: Chris Rank/Bloomberg

The number of U.S. homeowners who owe more than their properties are worth climbed in the third quarter as lenders repossessed fewer houses, Zillow Inc. said.

The share of borrowers with negative equity rose to 28.6 percent, up from 26.8 percent in the second quarter and 23.2 percent a year earlier, the real estate data provider said today. Last quarter’s portion was the biggest since Seattle-based Zillow began tracking the measure in the first quarter of 2009, when 22.3 percent of households were underwater.

The number increased because fewer delinquent properties are being taken over by banks, said Stan Humphries, Zillow’s chief economist. Banks have slowed the pace of seizures as they negotiate with state attorneys general probing the mishandling of foreclosure documents.

“We still have very high negative equity rates,” Humphries said in an e-mail. “That’s putting extreme pressure on households because temporary job losses translate into foreclosures at much higher rates when the household is in negative equity.”

Foreclosure filings in the U.S. declined 34 percent in the third quarter from a year earlier, RealtyTrac Inc. said Oct. 13.

Lenders are getting more aggressive with severely delinquent loans, Fitch Ratings said in a report yesterday. The rate of foreclosure starts on loans that were at least 10 months delinquent climbed to 12.3 percent in October from 6.7 percent in May, Jonathan Hoke, a Fitch analyst based in New York, said in a telephone interview.

The Zillow Home Value Index dropped 0.2 percent from the second quarter and 4.4 percent from a year earlier, the company said. Home values fell from the previous three months in 105 of the 157 markets measured. The only increases among the 25 largest cities were in Detroit, Boston, Denver and Pittsburgh. Washington and Fort Myers, Florida, had declines in the third quarter after two consecutive increases.

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