A senior economist at First American CoreLogic Inc. has estimated that it would cost $858 billion to extinguish the negative equity of all underwater homeowners and give them a 5% stake in their homes.

Several analysts say one reason the Treasury Department pledged unlimited support to Fannie Mae and Freddie Mac last week is that the Obama Administration is planning to expand the Home Affordable Modification Program to allow servicers to reduce borrowers' principal balances. Mortgage experts say borrowers who get this type of modifications are less likely to redefault. That's particularly true for borrowers with no equity or even negative equity, who have little incentive to stay in their homes.

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