Home equity not floating all boats, 4 million still ‘underwater’

While home appreciation is on the rise in many markets, there are still four million borrowers who owe more on their mortgages than their homes are worth, according to a new study from a division of Fidelity National Financial.

The report was issued in conjunction with the most recent Senate Banking Committee hearing which featured discussions regarding possible principal write-downs for delinquent “underwater” borrowers.

“Over the past two-and-a-half years, there has been sustained and continual improvement in the number of underwater borrowers in this country,” said Trey Barnes, senior vice president of Loan Data Products for Black Knight Financial Services, the mortgage and finance division of Fidelity National Financial. “From 33.5 percent of borrowers being in negative equity positions in January 2012, we’re now looking at less than eight percent of borrowers underwater.”

Borrowers now hold $800 billion dollars of mortgage debt overall, with some $157 billion of that being underwater. The data indicates that underwater borrowers are 10 times more likely to be delinquent than those with positive equity.

According to Black Knight, some $89 billion in principal reductions would be required to “right” these borrowers. For the 365,000 delinquent underwater loans backed by Fannie Mae and Freddie Mac alone, nearly $18 billion in write-downs would be needed.