America struggles with 3 million negative equity mortgages

A national write-down of three million negative equity mortgages in the United States, cutting borrowers’ loan balances to the point where they have positive equity in their properties, could cost the country’s taxpayers $100bn, says Edward DeMarco, the acting director of the Federal Housing Finance Agency.

Speaking in an open letter to Congress this week, DeMarco said that the US housing giants he oversees, mortgage financiers Fannie Mae and Freddie Mac, currently have about 10% of their borrowers in negative equity. And this “estimate does not include second liens or home equity lines of credit.”

Cutting the mortgage principal for all of Fannie Mae and Freddie Mac’s underwater borrowers to a 100% loan-to-value ratio, at a cost of $100bn, would be far too expensive for taxpayers, Mr DeMarco wrote in his letter, adding that he would be prohibited from taking such a step without congressional authorisation.

That estimate did not include the associated costs of training employees or upgrading the mortgage financiers’ systems, which are “outdated and inflexible” the Financial Times reported this week.