2010: The Year Of Walking Away On Your Mortgage

[bobbyw24]

DEC 30, 2009 20:27 EST
HOUSING | STRATEGIC DEFAULT | WALKING AWAY
Why bother? That’s the question more underwater Americans are asking themselves about their mortgage.

Trapped in the abyss of negative equity, more will decide to quit paying. As they should.

About a quarter of all mortgages in the United States are on houses that are worth less than the unpaid balance of the mortgage, according to real estate consultant First American CoreLogic. About half of that group, 5.3 million borrowers, are 20 percent or more underwater. For 2.2 million, the property is worth less than half the mortgage balance.

Those folks are called “homeowners,” but “homeborrowers” would be more accurate. All they own is an obligation to whatever entity services their mortgage. They’re essentially renters paying above-market prices.

But that “ownership” tag is often felt to be important. Americans who are trained to believe that a mortgage is a moral obligation fear punishment or a bad conscience if they walk away.

But foreclosure is hardly the mark of Cain, especially in states like California and Arizona, where lenders have no practical recourse to pursue a borrower’s other assets.

As more underwater homeowners realize there’s no hope to regain their equity, more will cut their losses. The reduction of liabilities brings immediate debt relief and often a lower cash outlay — on rent — for comparable housing. The financial shot in the arm should outweigh the stigma of foreclosure.

Financial self-interest is likely to be contagious. A study by three economists suggests that when a few borrowers in a neighborhood just say no, others are likely to follow.

Lenders do what they can to keep the disease of economic rationality from spreading. They try to “extend and pretend” with lower interest rates, extended terms, and the pretence that eventually the borrower will make good. Anything, really, to avoid the hit to capital that comes from a writedown of the principal.

Until now, borrower guilt has helped protect bank balance sheets. That is likely to change. If it does, the next chapter of the financial crisis could be a painful one.

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[Bruno]

good article. Thanks, Bobby!

"Those folks are called “homeowners,” but “homeborrowers” would be more accurate."

I've been saying the same thing for 10 years

[bobbyw24]

good article. Thanks, Bobby!

Many neighborhoods in Fla. have 30% walk-away/pre-foreclosure rates, which means every homeowner's property value drops--even property tax rate have started to drop because of this. Eventually the entire city/suburbs will be the Ghetto

[Bruno]

Many neighborhoods in Fla. have 30% walk-away/pre-foreclosure rates, which means every homeowner's property value drops--even property tax rate have started to drop because of this. Eventually the entire city/suburbs will be the Ghetto

In some areas, they are raising the tax rate to make up for the loss in revenue due to the decreased tax assessment values.

[bobbyw24]

In some areas, they are raising the tax rate to make up for the loss in revenue due to the decreased tax assessment values.

You're right--I misspoke: the assessed values are dropping incredibly fast and people's tax bills are lower but the cities are raising millage rates

[armstrong]

Many neighborhoods in Fla. have 30% walk-away/pre-foreclosure rates, which means every homeowner's property value drops--even property tax rate have started to drop because of this. Eventually the entire city/suburbs will be the Ghetto

one of the problems here is also homes way over priced to begin with and export of jobs, its a recipe for disaster. and yes low down requirments.......

[LDA]

If you walk away from a home like this, can't the bank sue you for money?

[Cali4RonPaul]

I walked away from my commercial real estate purchase and ended up filing a lawsuit against the party that sold it to me for breach of contract, fraud, negligence, false advertising... long story. I did this in early 2009.

Presently I am in much better shape now and hopefully I will get all my money back from the lawsuit.

Its Okay to Walk Away guys,.

[HOLLYWOOD]

I know upper class community people that are now "USING THE SYSTEM" to get better mortgage deals from Uncle Sugar.

The attitude out there is... The Government Stole from the people/us to preserve the banks/Wall st/and government at all levels... time for our own deals.

That's the consensus out there now.

[Original_Intent]

If you walk away from a home like this, can't the bank sue you for money?

Google "jingle mail"