Black Knight's October Mortgage Monitor: Principal Reductions on Delinquent Underwater Borrowers Would Require up to $89 Billion in Write-Downs

JACKSONVILLE, Fla., Dec. 4, 2014 /PRNewswire/ -- Today, the Data and Analytics division of Black Knight Financial Services released its latest Mortgage Monitor Report, based on data as of the end of October 2014. In light of the most recent Senate Banking Committee hearing, which featured discussions regarding possible principal write-downs for delinquent underwater borrowers, Black Knight examined the latest available data in order to quantify the scope of the issue. According to Trey Barnes, Black Knight's senior vice president of Loan Data Products, currently there are approximately four million borrowers in negative equity positions, representing nearly $800 billion in outstanding balances.

"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 Barnes. "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. However, there are still four million borrowers who owe more on their mortgages than their homes are worth, despite more than two years of relatively steady home price appreciation. Borrowers in negative equity positions represent $800 billion dollars of mortgage debt overall, with some $157 billion of that being underwater, and the data shows these borrowers are 10 times more likely to be delinquent than those with positive equity.

"There is understandably a great deal of debate around the issue of principal reductions for these delinquent borrowers. With an aggregate 40 percent delinquency rate among borrowers with current combined loan-to-value ratios above 100 percent -- a number that rises to over three out of every four for severely underwater borrowers (those with CLTVs of 150 percent or higher) -- the scope and cost of such write-downs would be immense. Some $89 billion in principal reductions would be required to right-side 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 called for."

Looking at the appetite for risk in mortgage lending, this month's Mortgage Monitor finds that, while still historically high, there has been some relaxation in credit requirements for refinance originations. Weighted average credit scores for GSE refinances have come down to 742 from a high of 766 in late 2011. Credit requirements on GSE purchase mortgages, on the other hand, have remained tight, with average credit scores remaining relatively steady since 2009 and currently at 757. Looking at GNMA-backed originations -- historically serving borrowers with lower credit profiles -- Black Knight again sees some relaxation in refinance credit requirements, with a weighted average credit score of 701. This is markedly higher, though, than the pre-crisis average of 628 in 2005. Likewise, credit scores on GNMA purchase loans are now an average of 703, up sharply from 2005's 660 average.

About the Mortgage Monitor
The Data and Analytics division of Black Knight Financial Services manages the nation's leading repository of loan-level residential mortgage data and performance information on approximately two-thirds of the overall market, including tens of millions of loans across the spectrum of credit products and more than 140 million historical records. The company's research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: http://www.bkfs.com/CorporateInformation/NewsRoom/Pages/Mortgage-Monitor.aspx

About Black Knight Financial Services, LLC
Black Knight Financial Services, a Fidelity National Financial FNF company, is the mortgage and finance industries' leading provider of integrated technology, data and analytics solutions that facilitate and automate many of the business processes across the mortgage lifecycle.

Black Knight Financial Services is committed to being the premier business partner that lenders and servicers rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class technology, services and insight with a relentless commitment to excellence, innovation, integrity and leadership. For more information on Black Knight Financial Services, please visit www.bkfs.com.

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SOURCE Black Knight Financial Services