20 Million Homeowners Projected to Be Underwater by End of 2011

More than 14 million homeowners are underwater on their mortgage today and Deutsche Bank projects that number will increase by 6 million to 20 million by the end of 2011. The bank also expects a rise in strategic defaults, especially in the states with non-recourse (the banks can't chase you for any shortfall).

There are 11 non-recourse states: Alaska, Arizona, California, Iowa, Minnesota, Montana, North Carolina, North Dakota, Oregon, Washington and Wisconsin. Some of these states, such as California, forbid lenders to seek deficiency judgments on any shortfall after a foreclosure. Others have such severe restrictions on deficiency judgments that it's "virtually impractical for the lenders to pursue a judgment without incurring an expensive and time-consuming legal process," Deutsche Bank concluded.

Deutsche took a closer look at the impact of non-recourse legal provisions on a homeowner's decision to strategically default and concluded that states that do allow recourse have lower rates of strategic defaults. Even in recourse states, Deutsche bank found that "actual deficiency judgments are rare in practice because they are often costly and time-consuming."