One in three homes with a mortgage in San Diego County is underwater.

To reduce, or not reduce?

San Diego County’s largest lenders, Bank of America, Wells Fargo and Chase, say they have forgiven more than $6 billion in mortgage principal and plan to do more. It appears lenders still have some ways to go, factoring in their obligations to their 2012 settlement with 49 states and the federal government, and the fact that $7 trillion of home equity in the nation has been lost between 2005 and 2007.

The last estimate from DataQuick showed that more than one in three homes with a mortgage in San Diego County is underwater. The reality of lost equity continues to push borrowers toward strategic defaults, in which homeowners decide to stop paying the mortgage.

“Principal reduction is a life ring to underwater homeowners from drowning in debt,” said Murtaza Baxamusa, who directs planning and development for the Family Housing Corporation, of the San Diego Building Trades in Mission Valley. “With a third of San Diego mortgages underwater, the attorneys general settlement will directly benefit our region.”

Others like Kurt Branstetter, loan officer and mortgage manager at W.J. Bradley Mortgage in San Diego, say principal cuts are not the answer.

“There is a moral hazard with selective principal reductions that cannot be overcome,” he said. “Bank of America requiring homeowners to be 60 days late on their payment to qualify will result in the worst possible outcome and most likely be the straw that breaks the camel’s back for the millions of homeowners who have honored their commitment by making their payments.”

Regardless of your position, more principal reductions are expected to happen in the nation, especially in the hard-hit state of California.

Keep Your Home California, the state program, no longer requires servicers to match program money dollar-for-dollar in order for a principal reduction to happen, a change that program officials hope will lure more servicers to the table.