Principal Reductions Would Cost $89B: Black Knight

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Principal reductions for underwater borrowers would cost approximately $89 billion, according to a report released Thursday by Black Knight.

The Jacksonville, Fla.-based analytics firm said that four million homeowners or approximately 8% of all borrowers nationwide have negative equity in their homes. That represents a sharp reduction from two years earlier, when more than one-third of all borrowers owed more on their mortgages than their homes were worth.

“There is understandably a great deal of debate around the issue of principal reductions for these delinquent borrowers,” said Trey Barnes, a senior vice president at Black Knight, in a press release.

“With an aggregate the 40% delinquency rate among borrowers with current combined loan-to-value ratios above 100%…the scope and cost of such writedowns would be immense.”

Bringing underwater borrowers to positive equity positions would also require $18 billion in writedowns on delinquent loans backed by Fannie Mae and Freddie Mac, Barnes said.

Underwater mortgages represent approximately $800 billion in total mortgage debt 20% of which is in negative equity.

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