We’ve talked about this issue a few times here on Consumerist and now the New York Times has gotten into the act with an article about people who’ve chosen use the new service “You Walk Away” to let the bank take over their mortgages after their homes turned out to be bad investments.
It seems that adjustable rate mortgages are changing the way people look at homeownership–and foreclosure:
“I think I could make a case that some borrowers were ‘renting’ (with risk), rather than owning,” Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard University, said in an e-mail message.
For some people, then, foreclosure becomes something akin to eviction — a traumatic event, and a blow to one’s credit record, but not one that involves loss of life savings or of years spent scrimping to buy the home.
“There certainly appears to be more willingness on the part of borrowers to walk away from mortgages,” said John Mechem, spokesman for the Mortgage Bankers Association, who noted that in the past, many would try to save their homes.
In recent months top executives from Bank of America, JPMorgan Chase and Wachovia have all described a new willingness by borrowers to walk away from mortgages.
Carrie Newhouse, a real estate agent who also works as a loss mitigation consultant for mortgage lenders in Minneapolis-St. Paul, said she saw many homeowners who looked at foreclosure as a first option, preferable to dealing with their lender. “I’ve had people say to me, ‘My house isn’t worth what I owe, why should I continue to make payments on it?’ ” Mrs. Newhouse said.
“You bought an adjustable rate mortgage and you’re mad the bank is adjusting the rate,” she said. “And sometimes the bank people who call these consumers aren’t really nice. Not that the bank has the responsibility to be your friend, but a lot are just so uncooperative.”
The same sorts of loans that drove the real estate boom now change the nature of foreclosure, giving borrowers incentives to walk away, said Todd Sinai, an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania.
“There’s a whole lot of people who would’ve been stuck as renters without these exotic loan products,” Professor Sinai said. “Now it’s like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren’t any worse off than renting, and you got a chance to do extremely well. If it’s heads I win, tails the bank loses, it’s worth the gamble.”
What do you think of this? Will you consider walking away if your house is worth less than you owe on it? The article quotes one expert who thinks as many as 5-6 million people may walk away from homes.
Facing Default Some Walk Out On Homes [NYT]
(Jim Wilson/The New York Times)
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Opinions are like a**holes, everyone has one.
Unless your in the shoes of someone who owes twice what the house next door is listed for you really wont understand. If you dont understand, your comments about the character of these people are going to make it easier for them justify screwing you the neighbor with the stigma a REO has on a neighborhood, and screw you the bank who put REOs on the market that prevented me from refinancing into a new loan or modifying the one I have knowing I cant afford it, charging me $1000 to process this modification you know I cant afford, adding a 3 year prepay is an insult since you pointed out I am $200,000 because 8 model matches are REOS already. My 84K down payment was my hard earned money, and I could save that again before the market bounces back to what I paid. CA protects borrowers from the banks after foreclosure, and the government is going to allow me (and some others) to get a fresh start by not taxing us for the balance the bank discharges.
Someone can lose everything in a disaster and we dont hold them accountable for how they made a living, if they lived beyond thier means, or what they punishment will be for not obeying manadtory orders. The people who drove these property values up are no more to blame then the ones who sold loans, homes, title, home depot profited, cae dealers, contractors, maids, gardeners, attorneys, just about everyone made a little more then in the past.
Imagine all the layoffs, people without insurance, doctors who will not be seeing those patients, cant afford dry cleaning so he is hurting.
If I cut my losses now, I might pick up a great deal around 2009-2010 when the resets are winding down. The inventory of REOs will last way beyond, so will the sluggish economy.
And yep, morality is for saps. For the Donald Trumps or Countrywide’s Mozillo, business is business — go insolvent, stiff creditors, rinse, repeat. The rest of you deadbeats had better damned well get used to cringing and groveling – you aren’t important enough to turn the thumbscrews on the folks you owe.
Of course it doesn’t help that when the news covers these underwater homedebtors, it’s often someone who appears to have a 3 digit IQ, and keeps repeating “I just didn’t know.” Didn’t know that you couldn’t pay off a loan at 20 times your annual income? Didn’t know that a $5K/month heating bill on that McMansion (TM) just might put a crimp in your lifestyle?
It’s called moral hazard – tends to start with businesses who are not constrained by EVUL SANITY BASED regulation, and can hand off their hot potatoes to someone downstream in their little pyramid scheme. It ends with regular people doing stupid things because really, they can’t see where others are being punished for stupidity – quite the opposite, in fact. “I guess you just have to take these insane, unjustifiable kind of risks in order to get ahead in this crazy country. That’s what my HOA president/boss/older brother is doing, and it worked out okay for HIM.”
Lesson: it’s a big HAZARD to cut off what is allowed in the free market from any serious accountability, particularly where it concerns the big rollers who dream up the fun stuff like “liar loans” & 125% loans for the masses, etc. While a small timer by comparison, I doubt my realtor neighbor will have to give back all the $$$ she’s made over recent years either — she earned it honestly, “housing can only go up” was her opinion (opinions can be wrong), she technically broke no rules (that anyone could bust her on without also incriminating themselves, anyway, I imagine)…the rich get richer, the poor get poorer, social darwinism works and all is right with the world – so long as you’re good with a world run by sociopaths.
Survival tip for the inevitably-to-be-foreclosed: the banks are trying hard to tread water and are getting slower and slower to actually get through the foreclosure process, in many instances. That’s a very real opportunity — at least sometimes — to stay in the house “rent free” for many months, and it might well be handy to use that time to work out one’s post-foreclosure survival strategy – maybe with the help of a lawyer, as this is not advice and IANAL…
So, it’s ok now to walk away from a contract. That makes the signature on a contract worthless. Regular renters who do this type of thing have a hard time finding somewhere else to move in that isn’t run by a slumlord or is at least undesireable. Somehow I doubt that these people will be treated that way and that sucks.
One thing no one’s mentioned is this: In some recently developed areas, vacancies are rising dramatically.
Though I’ve got a 4.99% 30-year fixed loan, if I’m the last occupied house on my block I’ll seriously have to consider walking away.
That point’s not here yet, but with the number of foreclosures in my neighborhood rising every month and the number of homes sitting empty either with or without for sale signs it might be here soon.
The day a bank does the right thing because of their principles and character we’ll be riding unicorns and houses will be made of candy.
@WV.Hillbilly: yep, bank’s fault.
This is me….my bank gave me, a single woman making 21,000/year gross income, a 89,000 30 year loan on a house. My payment is 770.00/month. How the bank figured that I could afford a house payment that eats up over half of my take home pay is beyond me!! I was a first time home buyer and I guess assumed that if the bank says I can afford this, than I can! My current situation is that I just received “the letter” that I have 30 days to come up with $3100.00 or they will foreclose. I can probably come up with the money to prevent this from happening, but it does not solve the long term problem, which is that I am married to my mortgage, and I hate this! Not sure what I should/can do….just venting!!
IF FNMA, banks, etc. would extend the term of the mortgage to 40 years, the lowered payment would help avert the foreclosure or desperate move of walking away from the mortgage. However, they are reluctant//unwilling to do so in most cases. I have been looking for solutions to my private financial crunch in a proactive manner and keep coming up with ‘no solution’. FNMA pays incentive points to lenders to get people to miss payments and then end up with another loan to cover the missed payments. It goes downhill from there.
You can’t paint all of the walkaways with the same broad brush- individual circumstances are different. It’s all well and good to say that people must honor their obligations but, ultimately, the basid of ALL mortgage agreements are a gamble on future prosperity.
Resets are only a part of the picture and I agree that people should read their terms and conditions. I did and decided I could live with resets if I couldn’t refi but with one caveat, the one that every homeowner has, my household income couldn’t drop below X percentage. I gave myself room to maneuver and, so far so good. I’m underwater but I can stay afloat, PROVIDED my income doesn’t drop too sharply. Protracted unemployment or illness could do it and the underwater status of my property value would mean I coudn’t break even.
The simple truth is that offshoring of heavy industry, inshoring of knowledge workers and, to a certain degree, labor pool pressures by migrant workers whose wages are held artificially low by their vulnerability to extortion based on their illegal status, have led to a serious decline in aggregate income that makes the current pool of borrowers increasingly unable to afford their mortgage payment.
A large percentage of the recent crop of homeowners that got in with 100% financing did so in large measure because extortionate rental rates combined with constant moving costs as their rentals were sold out from under them by fast-buck house flippers made it no more expensive to buy than rent and at least they didn’t have to keep begging a different landlord to accept them every few years.
Sure, there’re abuses and plenty of folks that simply went with their sense of entitlement but watching the current employment and income meltdown should make any thinking person reflect on the harsh realities faced by all of us who simply pray that our jobs will not be the next to be eliminated. Look at, not just employment statistics, but the TYPES of employment that provide the income streams that all of us depend on to provide ourselves with continuing employment. Then form your opinion.