Negative equity reaches $4 trillion

Mortgage records indicate that the level of negative equity reached a new high at the beginning of 2012.

Mortgage records indicate that the level of negative equity reached a new high at the beginning of 2012.

During a recent speech at the HousingWire REthink Symposium, Federal Reserve Bank of St. Louis economist Williams Emmons noted that the level of negative equity has reached nearly $4 trillion.

Emmons noted that as a result, it would take an estimated $3.7 trillion servicing settlement to get homeowners back to even. This is far more than the recent $25 billion settlement reached between the nation's largest mortgage lenders and a number of attorneys general on behalf of homeowners who were wrongfully foreclosed on.

"It is like the debt that is outstanding is crushing the equity that is there," he said.

The only result to the crushing negative equity that currently plagues the housing market is to let home prices fall until they are enticing enough to draw prospective buyers back into the marketplace, said Emmons. This would result in more private capital driving the housing market.

Additionally, the Department of the Treasury recently announced it would add incentives to lenders that would allow for the principal reduction of mortgage backed by Fannie Mae and Freddie Mac. This is expected to reach an estimated 3.3 million borrowers, and could result in a significant drop in the amount of negative equity.



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