Can't Afford Your Mortgage? Walk Away!

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)

Comments

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  1. snoop-blog says:

    uh oh meg, this will be one ugly can of worms opening.

  2. LorneReams says:

    People try to walk away and then find out the co-borrowers actually do get persued and deficiency balances can be turned into judgments that can be turned into wage garnishment. Bankruptcy becomes the only reasonable way out, but the new laws (new being a few years ago) made it harder to get a CH7 making people choose the more restrictive CH13.

  3. stevegoz says:

    The bank takes over the mortgages? I thought it took over ownership of the mortgaged asset!

  4. Nighthawke says:

    Seen this happening already in new developments.

    Semi-empty homes harboring vagrants, homeless, and the like
    Unkempt lawns littered with all sorts of debris you can could name, and then some.
    Homes stripped of their copper pipes and wire for recycling.

    This could be an age of the new slums.

    Bitch of this is that someone has to take responsibility for all this. So who does? The homeowner, they disowned the place and probably disappeared. The bank, they’ll go into liquidation from dealing with the eyesores. The gov’t, here we go again, where’s the money coming from and who’s going to pay for it.
    I’d say the former homeowner that paid the last mortgage is the one physically responsible for the upkeep.

  5. vastrightwing says:

    My home is worth less than I bought it for, but I have a fixed loan and I won’t walk away from the payments. Can I understand those who do? Yes. I have no love of banks and, heck it’s nothing personal you know: just a business decision. This is the only thing someone can do to a bank that’s similar to charging fees and raising rates because they can. The banks are being treated the same way they’ve been treating us. No tear from me.

  6. crabbyman6 says:

    This is a terrible practice for people that got in over their heads. If you got an ARM, you should have to face the consequences, sorry, too bad for you, some people just have more sense. Aren’t there any consequences to doing this other than a bad mark on your credit report that will be gone in a few years? Don’t they have to pay the piper at SOME point? These people are going to ruin the mortgages for people in the future as the banks are going to try to cover their butts with higher rates and/or stricter terms.

  7. LorneReams says:

    @stevegoz:
    To be technical, it forces the borrower to sell, and one of two things happen.

    #1. A person makes a bid that is higher then the banks minimum price for the property. The amount collected gets applied to the mortgage (any seconds are stripped due to the foreclosure) with any surprus funds going back to the borrower.

    #2. No bid meets the banks minimum so the bank takes ownership of the property and the borrower is left with a deficiency balance (basically an unsecured loan) and a judgment (which is what the foreclosure starts as). The bank then tries to market the property themselves to make back the money.

  8. stevegoz says:

    In a more vengeful world, the mortgage brokers would have to take over the lousy deals that they sold both parties on.

  9. TheRay07 says:

    Tag should probably be “Meltdown” instead of “Meldtown”. Although Meldtown might be a cool place to live, I dunno.

  10. elf6c says:

    Article underplays the crushing your credit will take. Also your foreclosure will show up when anyone pulls your credit- jobs, rentals, professional applications, licensing applications, security clearances ect.

  11. Tank says:

    Why not walk away from everything we’re upside down in? Cars, trucks, motorcycles, boats, SUVs. Only losers walk away from losers. It takes stones to suck it up and stick to it. I guess this is how you find out what someone is made of. Or what they aren’t.

  12. acasto says:

    Seems like it accurately reflects the mindset too prevalent in America today that has made the economy what it is. People are spoiled. They want all the reward with none of the risk. I was just out to breakfast the other morning and listened to some guy complain about how the current economic situation was Bush’s fault. It is ridiculous how idiotic and irresponsible people are these days.

  13. Black Bellamy says:

    @crabbyman6:

    Yeah, the did face the consequences. And as a result of that, they chose to walk away.

    What do you want them to do? Go to jail? Starve to death because they have to make a house payment?

  14. crabbyman6 says:

    @vastrightwing: Its not like they didn’t know what they were signing, they got themselves into it. I’m not a fan of banks, but come on, its not like these are surprise terms that they sprung on you. You’d be pissed if you lent someone money and they decided not to pay you. Why don’t you just walk away from your credit card bill? Child support, pfff, done with that. This is insane.

    @Nighthawke: Hopefully the township will put a lien on these properties and go after the borrowers.

  15. gamehendge2000 says:

    “If it’s heads I win, tails the bank loses, it’s worth the gamble.”

    I guess I’m one of the people who don’t categorize a personal bankruptcy and loss of credit as a “bank loses” situation.

  16. Tank says:

    @LorneReams: The Chapter 13 is only more restrictive in that it actually forces the debtor to pay for what they’ve agreed to buy, albeit at a renegotiated (read “court ordered”) rate/term. There used to be a time when people with means would file Chapter 7 and walk away from debts they could actually pay, the new law forces those people to actually live up to their obligations. Kinda fucked up I know, making people be responsible for decisions they made.

  17. crabbyman6 says:

    @Black Bellamy: err, walking away is not a consequence, its a choice. What I want them to do is follow the agreement they made. I know, I know God forbid someone in this country face personal accountability.

    I guess this is what you do when you have no one to blame for something but yourself.

  18. Trick says:

    This happened in Orange County in 1989. I know many people kept paying on their homes that were less than their mortgage.

    Even today they make out like bandits.

    But if you are willing to take a massive hit on your credit report, this may be a option for those who were duped by the bank.

    Yeah there is the personal responsibility angle, these people shouldn’t have taken the loan in the first place and will pay the price with bad credit for next 10 years.

    However, the banks should have never loaned the money in the first place so I hold the banks more accountable than the rubes who bought into these loans.

  19. NoWin says:

    A contract is a contract. I don’t think the banks, mortgage lenders, OR (my emphasis) buyers should be allowed a walk, let alone any type of a bailout.

    Some banks will go belly-up; some people will file bankruptcy.

    Insert comments about ….slippery slope…. here.

    That being said, some people will have no choice but to walk. Do what you need to do, but don’t expect that one should be rewarded for making a bad financial decision, because it’s the responsible and prudent homeowners and renters that will get shivved to pay for your lack of responsibilityand due-diligence.

    Quote: “There’s a whole lot of people who would’ve been stuck as renters without these exotic loan products,”

    So, whats so bad about renting? It may not be the perfect life, but you buy what you can afford, live to be safe and comfortable….you shouldn’t speculate on future earnings to get that Tudaor like the Jones’s….oooops, sorry, preaching to the choir.

    I miss that commercial about the guy on his riding lawnmover in front of the new house saying Im maxed up to my neck, please help me….

  20. BlondeGrlz says:

    @crabbyman6: Uh oh, never say “they knew what they were signing” around here. There were some shady last-minute bait and switch loans, promises of a refi, etc. going on. Beware the storm you just brought on yourself.

    I’m not exactly made of money, but this rise in forclosures has caused me to seriously consider buying property as investment. IF I can get a nice but empty house for a really good deal, keep it in nice shape, IF I rent it for a year or two, and IF I consider the long term vs. short term…it might end up being a good plan.

  21. loganmo says:

    I really see nothing terribly wrong with this. Whenever you enter into a contract, it is your right to breach that contract-as long as pay the consquences for doing so. In this case, you have people who made a contract with the bank (the mortgage), and it is now more advantageous to breach it and take the sucker punch to their credit score than to keep paying. If the banks did not want this possibility, than they ought have used more stringent lending guidelines during the height of the real estate bubble. That would have, of course, required lending institutions to put long term gains ahead of short term ones. In any case, if the terms of the mortgages sold by the banks do not prohibit this, then I say go for it if it gets you out of your upside-down interest only or ARM.

  22. RobinB says:

    @crabbyman6:

    You have it exactly right. I work for a small local savings bank who did not make any sub-prime or exotic loans, but the conditions of this market will eventually affect new homebuyers who will get hit with stricter rules and higher rates. In fact, if the Foreclosure Prevention Act goes through allowing the courts to change the terms of recorded mortgages as they please–my boss will stop wanting to make mortgages at all. Why take the risk of loaning money if the terms can be altered down the line without your consent?

    If you sign a note for a loan, any loan, you are “promising to pay” it back. You should do your best to honor that commitment, not walk away when the going gets tough or your investment looks smaller.

  23. loganmo says:

    @NoWin:

    It is a fundamental property of contract law that you have the right to breach the contract-you just suffer the damages as contemplated by the contract or by applicable civil law.

  24. quagmire0 says:

    If I was new to this country and someone came up to me on the street and said: “Hey man, I’ve got a great deal for you: you should ROB A BANK! Yeah! It’s the best thing for you! You just go in, demand the money, and then you are set for life! Here, I’ll even give you the mask and gun – AT NO COST TO YOU!”, and then I proceeded to rob said bank. When I got home and the police are at my door, can I just hand over the money and say ‘I’m sorry, I didn’t know it was illegal and that there could be potentially bad consequences for my actions!’ and let that be that?

    NO! I would be arrested! Now, wasn’t it my responsibility, when that man first approached me, to at least question what he was saying. Perhaps I should have taken down his number and done a little research on this whole bank robbery thing. If I had, I would have found out that it was illegal and that I’d be thrown in jail for doing it. ‘Good thing I did my homework’ I’d say to myself.

    It’s the same effect with these people. They can cry about crooked banks and loan sharks pointing them in the wrong direction, but at the end of the day, the blame falls on them for not doing their due diligence. There are libraries in this country that have internet and computers that are free to use. There are numerous government and charitable organizations that will educate people on buying a home and what to look out for. These people either blatently disregarded good advice, or they made the biggest purchase of their life on an impulse. Now, as others have pointed out, we all will pay for their petty mistakes.

  25. MadameX says:

    Things would really have to take a dive before our home would be worth less than we owe on it. We put 30% down (on a 5.25% fixed 30 year note).

    Its hard for me to believe this will happen, but if it does, we’d still sell off everything we own before we’d walk away from our home. We’ve just put too much time making it just the way we want it.

    I have a hard time understanding people who think this way, but maybe its because I’ve never allowed myself to be put in their situation.

  26. Erwos says:

    I’ve said it before, and I’ll say it again: any solution which doesn’t reward people for doing the right thing and punish people for doing the wrong thing is not a good solution, short-term or long-term.

  27. JessiesMind says:

    It’s the “I want it all and I want it now” mentality that everyone seems to have, nowadays. They know exactly what they are getting into when they get these risky loans but hey, that’s okay. By the time they have the house or car taken, they’ll have trashed it and/or tired of it, anyway. Just walk away, find another underhanded loan agent and start the same process all over again. There really should be higher penalties for this than there are.

    On a related note, doesn’t this just circle back around to that recent article about small and mid-sized banks going under because they aren’t able to afford the properties either?

  28. DeeJayQueue says:

    I don’t quite know where I stand on this. On one hand I’m sorta ok with the people who bought into these houses that they bought wide-eyed and hopeful have an escape plan when the mortgage spikes.
    On the other hand, it sucks for just about everyone else except that person when the house is given up. The banks lose money, so they make it up somehow. The lenders are more sketchy about who they lend to, so that it’s harder for decent wage earners with poor credit to buy a home, etc.

    But overall I think this is a greater symptom of the disease of people using real estate as a money-making tool.

    How about this: Your house is where you live. It’s not an ATM, and it’s not an investment. It’s a place to go to when you want to eat or sleep or relax from work, pursue hobbies, etc. Too many people bought houses they couldn’t afford thinking that the market would support them and if their payments went up they could re-fi or take out equity to pay the difference, and they get burned when that’s not the case. Meanwhile, flippers buy houses and raise their value so that it’s out of the range that lower-income families can afford, artificially raising the base price for everyone’s house. It makes owning property a much harder game to break into, and a much more alluring one at the same time.

  29. crabbyman6 says:

    @blondegrlz: Heh, I’m not saying that sometimes I don’t feel bad for these people. The bait and switch loans are exempt from my previous rants. Also, there was a “mortgage broker” around me that was just keeping the payments people sent to him and not giving them to the bank. He proceeded to blow the millions of dollars in bad investments, and now those people are out the money the sent in, but still owe the full amount on their mortgage. However, I’d bet that a majority of these people knew excatly what they were getting into, but had to keep up with their neighbors, and then buy a new SUV, and then… I see this all the time around me in the exurbs of Philly.

    I can just see banks using this as an excuse to screw new mortgage borrowers even harder in the coming months/years.

  30. elijah_dukes_mayonnaise says:

    @NoWin: That guy filed for bankruptcy in 2005.

  31. badgeman46 says:

    What I do you think the odds are that most of these people still are spending 100+ bucks a month on cable and 100+ a month on cellphones. Pretty high I’d say. People just don’t know how to prioritize their spending.

  32. jrr316 says:

    I would walk a way tomorrow. My Wife and I bought a condo, purposely did not over extend ourselves and spent 174,450. Now it is worth 150,000 and we owe 168,000. It is just an ugly situation, the condo association is horrible, neighbors are worse… I’ll take the credit hit in a heartbeat just to be done and move on…

  33. Snowblind says:

    @loganmo:

    What is wrong is that the Mortgage Act of 2007 really reduced the consquences of going into forclosure.
    The bank and the borrower had a deal, and now the Government has tipped the scales twords walking away from the property.

    All unintentionally. The put in a tax exemption if you get a financial “gain” from a refinancing to a lower amount if the bank forgave part of the debt. That ended up making the foreclosure more attractive than sticking it out.

    Government should stay out of the Mortgage process on the back end. Regulate the lenders better, but don’t screw with the deal after it is made.

    Fraud is protected under the current laws, so if someone was defrauded by bait and switch, they can get relief, no extra special protection is needed.

  34. CuriousO says:

    I should have been irresponsible and bought a home I couldn’t afford…. stupid me!!!!!!, i should have known the govt. would have bailed me out.

  35. picshereplz says:

    A contract is a contract. The consequence for not making the mortgage payments is foreclosure, so the bank has nothing to whine about when a borrower follows the terms of the contract.

  36. CaptainConsumer says:

    Ultimately, these people who just walk away are irresponsible people. I don’t CARE if your house lost value. Hard cheese. That’s how America works. You’re not GUARANTEED any kind of rate of return.

    I TRULY hope the banks sue these walk away homeowners. If they are forced into bankruptcy they’ll STILL be forced to pay it back with the new laws on such.

    YOU signed the note now YOU deal with the consequences. Walking away and thinking the government will bail you out is unacceptable.

  37. AaronC says:

    I don’t think the banks are at fault at all. I think it is Idiots who chose to get loans and then desided to buy new cars/products rather than pay the loan.

    I mean, who in their right mind would get anything but a loan with a fixed rate? I don’t care if it was so you could afford the house, buy a smaller one or rent. No one tied their hands, and only a complete idiot would think a variable rate loan would only go down. jeez.

  38. livefastjohnny says:

    @CaptainConsumer: Actually most mortgages are non-recourse secured loans, and usually they had PMI added. So once the lender owns the original and now depreciated asset, there is no further venue of pursuit against the borrower other than HELOC’s or seconds that may have been taken out against the property.

  39. CuriousO says:

    @CaptainConsumer: BRAVO BRAVO, i couldn’t agree with you more

  40. Quintus says:

    The problem that people are ignoring is that the subprime meltdown is tipping over into other sectors. It is not just affecting those who took out bad adjustable loans with teaser rates. Sure a lot of you are saying they get what they deserve we shouldn’t help them. Who cares, yada yada.

    What you’re neglecting to understand that this is slowing the economy down, banks are loseing money, some are on the verge of breaking. The manufacuring sectors are slowing down, banks are clamping up on giving out new loans, period, to anyone, it is a lot harder to get a loan, to say open a new business etc. This hurts the economy further. Take this plus the double whammy that oil prices are going up, the economy is in a reccssion, people on the market are loseing a lot of money, people are earning less. The money we have, because of inflation, and the weakening dollar is worth less.

    This is something that effects EVERYONE, no matter if your a heartless whimp who could care less what is going on. It will effect you whether you know it or not.

  41. teapartys_over says:

    @CaptainConsumer: “Walking away and thinking the government will bail you out is unacceptable.”

    Unless you’re part owner of a Savings and Loan company and your dad is the president. Then I guess it’s OK.

  42. CaptainConsumer says:

    @livefastjohnny:
    Well that’s too bad.

    Once again in America, the smart people are left to bail out the dregs and morons.

  43. emilymarion333 says:

    @CaptainConsumer:

    I agree with you completely! they signed the paperwork!

  44. revmatty says:

    Maybe this is a contrarian view, but isn’t now a good time to say to the loan holder “Hey, I don’t want to walk out on my obligation, but given the current economic environment I think it makes sense to talk about a renegotiation of interest rate.” Facing tons of unsellable property on their hands I’d think they would be happy to work out an equitable deal for people who will continue to make their payments and not burden the company with more property.

  45. CaptainConsumer says:

    @emilymarion333:

    I’m SICK of mollycoddling these people. “Oh I was cheated, I was a victim”

    No, no you weren’t. You signed the papers. If you didn’t READ them or you didn’t have a lawyer look over them, again HARD CHEESE.

    Their names should go into a database and any future lawsuit monies or lottery monies they make should be garnisheed.

    They’re nothing but leeches, societal fleas if you will.

  46. storm says:

    @Quintus:

    Why does society expect one standard from people and another from business?

    No business worth its salt skips a beat cutting out a bad investment, or going bankrupt to ditch pesky pensions or bad debt–but people are somehow stigmatized for the very same behavior.

    Let yourself be locked into that kind of thinking if you want, but you will always be poor and content with only moral standards set by others. People need to start treating their personal finances like they are a business. That means cutting bad investments out sooner rather than later, even if –ooooooo– they have to deal with a foreclosure.

    Corporate america would (and is legally required by its fiduciary duties to its shareholders) do no different.

  47. laserjobs says:

    I have more obligation to my family than a bank, so yes I would walk away.

  48. stageright says:

    Hello? In the past, people put 10% or more down on the house. How many of these ARMs were no money down? Some of them were even “get cash back” loans!

    So if I have 0 invested in the house, and banks get to write off bad investments all the time, then why WOULDN’T I walk away? Yes, I may have been irresponsible in signing an ARM, but the bank was just as irresponsible in GIVING me an ARM. If the bank isn’t willing to work with me to get us BOTH out of a bad situation, then there’s no reason for me to take the complete wrap myself, so to speak

    Yes, I’m putting this at the end so I can see how many people read this far before hitting reply: I do not own a home not have an ARM. It was just too confusing to write this all in a third person :)

  49. storm says:

    @CaptainConsumer:

    Your contempt for your fellow human is palpable. This particular article is not about victimhood or being swindled, it’s about making a business decision whether or not to accept foreclosure.

    Simply put, there is no reason on earth why someone shouldn’t just walk away from a loan they can’t afford and start over, the same way, say, United Airlines, K-Mart, or any other number of major business have done.

    If you give up a good job, or a good marriage, or even a few extra bucks that could be better spent on other things to preserve a mortgage you cannot afford, you are a fool, and you are fooled by the blowhards like the commenters here telling you you are a cancer on society. That’s capitalism, baby. That’s why the banks charge interest—to defray risk. If they didn’t properly asses that risk, that’s their fucking problem.

    It comes down to this: are you going to let your neighbor who thinks his shit doesn’t stink shame you into keeping a miserable loan, or are you going to walk way from a bad deal with Gordon Gekko shrewdness?

  50. storm says:

    @laserjobs:

    Word.

  51. Quintus says:

    I’m just saying that whether you like it or not it’s effecting more people than just those who are forcloseing. It effects, in the long run, everyone. Whether or not you agree with what is going on, or want to help them, why don’t you want to help yourself. Just laughing at them and saying: You’re getting what you deserved, hahahaha, is just plain foolish. It is not just effecting them, why can’t you see that this is effecting everyone, honest people as well as dishonest.

    Things are just starting to heat up, perhaps in a year from now, or later on in the year when things get really bad in the economy, and they begin to effect you personally, you will understand what I’m saying. Until then, I guess you can keep with your high and mighty attitudes, everyone’s tunes will be changing soon. Everyone’s.

  52. CaptainConsumer says:

    @laserjobs:

    Good thing you don’t have some kind of signed contract with your family you could break. Sounds like you would.

  53. CaptainConsumer says:

    @storm:

    My contempt for IRRESPONSIBILTY is palpable. If it just so happens to be idiot home buyers, sobeit

  54. Snowblind says:

    @laserjobs:

    You are right, important things like demonstrating the value of your word.

  55. Techguy1138 says:

    This is a simple bank cock-up.

    The bank made secured loans. It’s their responsibility to determine the asset they are basing the loan off of is actually worth close to the loan price.

    Banks got too greedy. Not only did they not question the value of the secured asset they didn’t give the home owners a sense of equity.

    It make good sense to walk away if you are having trouble paying. What equity can you expect? If it looks like you are going to get nothing at the end of the deal,why try? Cut your losses and move on. Let the bank take the house.

    This is exactly what happens in business when a deal is one sided.

  56. UpsetPanda says:

    Amen to all the people touting personal responsibility. It’s true. People get themselves into a situation, I think it’s great they want to pull themselves out (who wants to stay in debt?) but it doesn’t change that they signed the papers. There’s no reason to think that average folks can’t get someone knowledgeable to read legal and financial documentation. If they didn’t know what any of it meant, there are services in place to aid people who don’t understand the entire picture.

  57. Jackasimov says:

    @CaptainConsumer: or be lectured by them,

  58. nikkimarie says:

    I like that the realestate agent’s name is “Newhouse”

  59. llryuujinll says:

    @CaptainConsumer: technically you could say the same about the banks. as they knew the risk of handing out loans to people that may not be able make payments in hard times. The only way the banks would be exempt from this is that people lied on the applications. You just can’t put all the faults on the people. Both sides took risk and now they’re both going to get burn.

  60. remusrm says:

    not everyone that got those loans are at fault. i knew some guys that faked papers to get people approved and the borrower did not know of it. all this is greed. and yes i would walk away. screw the bank. my life my family my wellbeing is more important then a damn loan. i do not live to pay a bill. i bet the ones that love the system so much will quiver when faced with such decisions. oh wait… they will sell their family to make the payment.

  61. thatblackgirl says:

    I would never buy a house I couldn’t really afford, but then that’s just me.

  62. loganmo says:

    @Snowblind:

    I agree, the government should stay out. Do not pass any sort of relief for the banks or for the homeowners. If the homeowners want to walk, let them walk and deal with the consequences. Let the market work itself out.

  63. Techguy1138 says:

    @CaptainConsumer:

    What about the responsibility to ensure the value of assets against a loan? Banks were irresponsible in this regard by hundreds of billions.

    Now there are in a hard spot because when they execute the contract correctly, and take the secured asset, they were negligent.

  64. bigduke says:

    Maybe banks should worry about a person’s ability to pay back a loan before they make said loan. The banks where gambling just as much as the homeowners on this bubble. They made bad loans to people who could not afford to pay them back. They deserve no tears.

  65. @elf6c: The crushing side of mortgage walk away is a potential gold mine for people with good credit. Imagine, fewer people to compete with for jobs, because some people have credit unworthy of working in a decent job. Imagine, a GLUT of high value homes in nice neighborhoods, owned by banks, negotiable by individuals who don’t have to pay a fee to a broker. Imagine it. It feels okay for some people, like crap for people who bought stuff they couldn’t afford and their slimy mortgage brokers who should be skewered for undermining our financial system.

  66. timsgm1418 says:

    I have to agree with whoever said it’s your home not an investment. I put 30% down on my house because I didn’t want to pay mortgage insurance, and thought it would be nice to have some equity when I moved in. When I bought the monthly payment was at what I could afford, now 16 months later because of the housing boom of 2 years ago and our Dipsh*t governor raising property taxes (along with every other tax he could think of) my payment is $200 more a month than when I bought the house, which puts it right at “difficult to afford” I have no intention of walking away and am working with my lender to re-fi to lower interest to lower the payment some. My best friend walked away from her house back in the 90’s after refinancing over and over until they owed more than it was worth, and yet within 5 years they were buying another house. I thought that would affect them for at least 10 years, so I was pretty surprised.
    I can already hear the “but they have kids” arguement for these people that are in trouble with their loans, but seriously shouldn’t they have thought of that when they bought the house? IMHO I don’t think that’s really teaching their kids a good lesson either, just walk away, it’s not your fault…I guess if they’ve tried everything else, getting rid of cell phones, cable etc and still can’t afford, they have no other choice…I grew up in the 70’s and we managed to do without cell phones just fine, and I don’t know anybody that needed a new car every 2 years either, most drove their cars until they got too expensive to fix. Get over the status thing and buy what you can afford. I would sell just about everything and cut back on everything I could before I walked away from my house, because to me it’s where I live, not an investment. If I make money when I sell great.

  67. justbychance says:

    We can point fingers until we’re blue (for some purple) in the face. This happened because of low rates, and low bank requirements in a thirst to dish dollars at any cost. The greed that ensued by many people from flippers to mortgage brokers to realtors should have been expected.

    I don’t expect anyone that put less than 20% down to care much, they have no incentive to. If they do, it’s a bonus, but it’s sad that what pride used to be has been reduced to saving one’s own butt no-matter-what.

    I was lucky and thankful enough to get a great rate and a cool new home. I’ll never leave it b/c the rate is fixed, the area is bound to get better and inflation means that it’ll be more affordable as time passes.

    All of this really underlines the lack of financial education in every class of American. Sad thing is that at this rate, the next President will have to turn this around before things get worst.

    First stop: Turmoil… Next stop: R-E-C-E-S-S-I-O-N

  68. QuantumRiff says:

    This is a good thing! The irrational exuberance that caused people that couldn’t afford homes to suddenly be able to purchase one is now causing those people to walk away. I know that sounds bad, but they WILL take a huge hit on their credit reports, and what bank will even think of loaning to them again in the coming years? They will be stuck renting, and with less people out trying to buy homes, maybe they will start appreciating at a stable rate. IE, natural selection for homeowners..

  69. justbychance says:

    @PotKettleBlack:

    Down in Atlanta, you can get a 4BR home for under 100k sitting on an acre+. It’s like Christmas.

  70. Steve Trachsel, Ace says:

    @PotKettleBlack: Oh yeah, its all the brokers fault. They were so slimey to put people in those low rate Interest only loans that they demanded (and they did, you try to convince someone that $400 a month more for a fix rate full payment was the better option). Customer demand created those products.

  71. Erwos says:

    I love all the short sales going on these days. Another six to nine months, and we’ll be able to buy a ton of house for very little money. Guess waiting and renting will pay off! :)

    Seriously, buy what you can afford. And if you don’t know if you can afford it, sit down and do the math. And if you can’t do the math, that means you can’t afford it. If the bank lied and defrauded you, sue them. If a buyer defrauded a bank, I should hope the bank would sue them, too.

    Again: bail-outs don’t help. They punish the people who did the right thing, and reward those who didn’t. They socialize risk and privatize benefit.

  72. littlejohnny says:

    @crabbyman6:
    I agree these people should definitely take responsibility and follow the terms of thir agreement. However, the terms of their agreement state that if they don’t pay, the bank gets the house. They are 100% following the agreement by doing this. The bank should not have loaned the money.

    Remember, it’s the banks that lent money to these people that were unable to repay back the loans that caused so many additional buyers and drove up home prices for everyone else. I believe the banks thought they could foreclose on the house when the rates reset and make a profit.

  73. stinerman says:

    @badgeman46:
    That’s because once people get accustomed to a particular standard-of-living, they’ll fight tooth and nail in order to keep it. If that means putting the $120 cable bill on credit, so be it. People believe they “deserve” certain things no matter how bad the economy gets; it’s just human nature. The only thing that will stop it is the end of easy credit.

  74. watchmanseven says:

    The bottom line is you’re responsible for yourself.

    Sure it sucks, but no one did it to you but you.

    People choose not to think and then want to be the victim and say they didn’t know. You chose not to know. Deal with it.

  75. Jamie Beckland says:

    This issue is just really tough all the way around.

    As moral actors, we have a responsibility to repay our debts, and uphold our promises. Remember, a legal bankruptcy does not change the moral imperative: you still owe that money, whether you are legally obligated to pay it or not.

    On the other hand, the banks did willingly offer these products, and if homeowners want to make the decision to break the agreement, they are within their rights to do so. People are, after all, rational economic actors (mostly).

    The government is concerned, rightly so, because of the real possibility of lowering the quality of life (read: new slums) and also the economic output (future loans to be made, profitability of banks going forward) of society as a whole. So, there is a clear imperative there to come up with a solution – but what?

    In the meantime, bank officers are simply not prepared in any way to deal with these levels of default. Some bankers have literally hundreds of files of homes in various states of foreclosure. There is a lack of expertise, a lack of people to work in those jobs, declining profitability (which freezes new hiring), no time to get up to speed, and increasing problems with lienholders.

    So, the result is that, because of the size, scope, and speed of the problem, there is no way to come up with an effective solution.

    My outlook on this is that in about five years, there will be some amazing deals to be had for astute investors willing to take on some risk. These people will have to rent somewhere…

    Remember, the housing slow down of the late 80s took 15 YEARS to recove…

  76. yesteryear says:

    i think the banks are just as negligent as the former home owners. yes, the folks taking out the loans were gambling, but weren’t the banks also doing the same thing loaning money to people who didn’t even have to prove they were employed?

    the banks that took part in this should be rated lower, and the consumers who took the loans should have some serious dents on their credit reports. no one should get to walk away.

  77. JustAGuy2 says:

    @crabbyman6:

    They’re fully living up to the terms of the agreement. Deal is, make your payments or the bank takes the house. They’re choosing option B. If they wanted to not make payments but still live in the house, that would be a different issue entirely.

    Remember, this only works in non-recourse states (like California). In those states, the bank can’t come after you for anything other than the house itself. In recourse states, the bank can also come after your other assets if the sale of the property doesn’t cover the mortgage.

  78. burninator says:

    It seems that there is a social stigma associated with defaulting on a loan, which seems funny being as other social stigmas (Couples living together out of wedlock, teenage pregnancies, etc…) are mostly gone. But defaulting on a loan is a big taboo! It’s a morally relativistic world, the bank would happily steal your money if they could they have no scruples of their own, and individual that want to cheat the bank out of money have the legal ability to do it back. If you take morals out of the equation it’s simply a matter of is the free 9 months rent and removal of debt worth the credit hit I will incur. America left its morals at the door years ago, its every man for themselves now.

  79. stinerman says:

    @acasto:
    I think one can make the case that the fiscal policies over the last 7 years have contributed to the poor economy, but I agree that George Bush isn’t solely responsible. Easy credit due to artifically low interest rates and the childishness of the consumer (which you pointed out) are the main drivers.

    With respect to Bush and the Congress, I think that some sort of economic stimulus targeted at getting the wages of the bottom 50% up would be best. This coming recession is because the people on the low end of the economic ladder no longer have the means to buy enough products to keep the economy going — at least not without leveraging themselves to the hilt. They’re all tapped out, and it’s time to pay the piper. The richest Americans can’t and won’t make up the difference because they tend to invest their disposable income rather than spending it on goods and services (how many cars or plasma screen TVs is enough?).

    A tax policy that rewards work over investment would be a good start.

  80. SuffolkHouse says:

    What would a savvy corporation do? They’d walk. I’d walk too. Good for them. Just walk! Never look back.

  81. who was that kid (21 I think) out in California (I think) that took on so much debt trying to make the quick buck? Last I remember of him he was about to lose everything…

  82. @structuralpoke: Ah — Casey Serin. thank you Consumerist archives

  83. NoWin says:

    @loganmo: Oh, I agree completely. It’s that this topic on the legislative level will eventually morph into “making it OK to walk without understanding or invoking the ramifications”….or more exactly, trying to change the terms (or penalties) of a contarct one way or the other to enable one party or group of parties.

    Contract law is doomed at that point; ergo, what good is it?

  84. crabbyman6 says:

    @littlejohnny: @JustAGuy2: I’m not a banker, but I also believe that the agreement PROBABLY states, or is based on the supposition that they will, at some point, pay back said loan. Sure, there’s a section if they default, that’s a PART of the agreement. I’m pretty sure the agreement doesn’t read “Party A(the bank) will give Party B(the deadbeat) $200,000 with no expectation of Party B paying that back, but if you feel like keeping the house make some payments, otherwise forget about it and we’ll take it back, no biggie.” The whole thing is based on the supposition that it will be reimbursed plus interest, banks != charities.

    On the up side of this, its a good time to own rental property, I suppose. Just make sure you collect the rent UP FRONT.

  85. Steve Trachsel, Ace says:

    @burninator: I dont know where this 9 months thing came from, but the time frame is usually much shorter. Also, a lot of these people arent behind, they are just upside down on their loans and want out.

    I have no moral issues with people walking away. Yes, it forces down my property value, takes cash out of the local government(no one to pay property tax) and has a number of other effects on me. I dont care about that. My concern is most of these people have no idea what the results will be. They dont understand that by walking away from a home they are 50k upside down on they may cost themselves much more over the next seven years. Everything from employment, to credit, to insurance rates will feel the effect.

  86. NoWin says:

    I guess what I’m saying is I have NO problem if a family MUST walk away from a contract; but don’t expect me or the rest of us to indulge or coddle them in their decision, or give them a financial break because of it.

    I’ve make a big-bad financial decision once in my life; I took my lumps, and braced-up all the better for it. No hand-outs, no sympathy. My choice, my loss. Not the rest of the taxpayers.

    Just my .02

  87. bearymore says:

    Well, this completes the circle. Start with the investment bankers who invented the tiered securities that allowed them to sell bad loans disguised as solid securities while avoiding any of the risk themselves ([consumerist.com])
    Then there were the bond rating agencies who didn’t do their jobs, and the institutional investors who bought the securities when they should have known better (Any pension fund manager want to buy a bridge?) Then there were the mortgage bankers who cashed in by making loans that they knew would go bad knowing they could dump them on the securities market. And then there was the financial press who kept touting the idea that real estate was a riskless investment that could only go up. You’d think that they would know better after their prognosticatory triumphs in 2000 such as “Dow Jones: 36,000″.

    Is it any surprise that the home buyers themselves would share in the immoral (but legal), irresponsible, and ultimately destructive greedfest and game the system themselves?

  88. littlejohnny says:

    @crabbyman6:

    I’m pretty sure it does say something almost exactly like that. The bank wanted to get a few years of interest off you. Mine is about 18k per year. Then have you not be able to afford the ARM reset, and take the house back then sell it for a profit.

  89. Me - now with more humidity says:

    revmatty: You would think so, but I’ve been dealing with two lenders who have made it impossible to renegotiate the terms. One is a servicer, Wilshire, who never owned the loan and won’t tell me who does.

    We even lost a short sale because they took 4.5 months to make a decision. They lied about not getting the paperwork three times, despite our FedEx receipts. The file went through 5 reps in that time, and we had to start over each time.

    Both sides entered into a contract that says the buyer will make payments. If they don’t, the lender takes the property back. Both sides are doing what the contract allows.

  90. Me - now with more humidity says:

    littlejohnny: banks don’t want property back — they virtually never make a profit when they resell.

  91. sir_eccles says:

    It’s painted as some sort of get out with no consequences. But I see trouble if more and more people do this. It will mean more and more properties dumped on the market by banks who want to recoup something. This will depress average house prices meaning more peoples homes will be devalued putting them into the same situation. Could it snow ball? Will it gut developments as more and more people walk away?

    Somehow I don’t think saying “please don’t walk away for the greater good of the housing market” will go down too well.

  92. snoop-blog says:

    For those who think walking away is the right thing for you and your family to do:

    why do you give a shit what these people on their high horse think? they are obviously extremely conceded and selfish and are all about them. their shit doesn’t stink, just remember that. helping a fellow citizen who got screwed by greedy banks? ha! it wouldn’t matter who you were or what you did, these people would still be high horse assholes. you can’t change that with any amount of good or bad.

  93. consumerd says:

    @Tank:
    Do you honestly thing large corporations are any less of a loser? Nope, they do the same tactics.

    Why is it when corporations do it we all barely complain but when joe common homeowner does it we complain louder? Hey if it’s a bad investment should I keep paying when people and corporations richer than me do not? No, I will use the same tactics they do thank you very much!

  94. waxigloo says:

    @littlejohnny:
    Exactly. Walking away is built into the contract. If lender doesn’t want the borrower to take the ‘walk out’ approach, then they will only give loans to people that put 20% down and have a reason not to walk away.

    The banks wouldn’t care if property value was still rising. But now they are whining because the value fell and they are stuck because of their idiotic lending practices.

    And who is the government bailing out? Not the borrower, as some people have suggested. The government is bailing our the lender…the very people that caused this mess in the first place by assuming property values would keep skyrocketing.

  95. arch05 says:

    @snoop-blog: You show your low level of education by saying ‘conceded’ instead of ‘conceited’.

  96. bostonmike says:

    So this is wardrobing applied to houses. Buy a house, wear it for a while, and return it. The difference is that folks offering mortgages build this option into the mortgage, outlining exactly what the costs are for doing this.

  97. nardo218 says:

    Sounds like bankers blaming the victims of the poor economy and subprime melt down. “Well, those people, you know, they don’t WANT to succeed.”

  98. waxigloo says:

    @bostonmike:
    Not really. Your analogy fails because:
    1) The borrowers don’t buy the house with their money.
    2) They don’t return the house and get their money back.

    It is more a store offering you something for no money down that you will pay off over a period of time. And then you not paying. The store then takes that something back because of the lack of payment.

    Now, the store wouldn’t care if you had made a few payments and the value of that item had increased. It is only because the value of the homes have decreased that the banks are whining. Which is part of the reason no one offers items that depreciate quickly under the same contract as mortgages.

    Also, most people wouldn’t destroy their credit score over a $50 shirt, but they would over a $200K house.

  99. char says:

    If it hurts your chance of getting a loan that’s the banks fault for giving out shitty loans that have no down payments.

    The banks goal is to make money, they set up the conditions where it make gruesome sense to walk down from a loan. If the banks want to look to someone to blame for a drop in profitability, they need to look no farther than themselves.

    In terms of personal impact if your credit is ruined from walking away from a loan that’s your fault (outside of fraud of course). But don’t blame people for banks shitty business decisions.

  100. LorneReams says:

    @Me:

    I haven’t seen a bank even break even in over five years once the bank takes back the property, let alone a profit.

  101. WV.Hillbilly says:

    @stevegoz:
    In a more vengeful world the deadbeats that defaulted on the loan would be thrown into debtor’s prison.

    The federal government is responsible for this mess as well. They’re the ones that pressured the banks to provide loans to less than desirable customers.

  102. ellis-wyatt says:

    Why does this “it’s just business” approach surprise anybody? Banks have been using this approach with their customers for many years now. When they centralized operations, reduced staff, gave us ATMs, 800 numbers and on-line banking, we were initially told it was for our own convenience. When people called bs on that approach and ranted about poor customer service, we were then told banks had bottom line targets to hit and stockholders to satisfy and this is the only way they could do that and remain competitive. “It’s just business.”

    Banks went “retail” and hitched their earnings wagon to fee income. As such, they are always seeking or creating new sources from which to generate that fee income. They see their customer merely as potential sources of fee income via cross-selling. Mortgage banking became an easy way to do just that, either by soliciting apps from existing customers without bothering to determine beforehand if they were qualified or to see non-customer applicants as new sources of cross-sales revenue. In addition, mortgage lending was a great way to tack on fee after fee after fee to pad the bank’s bottom line. “It’s just business”.

    Along the way, banks didn’t bother to get to know their applicants/customers/borrowers at all. There was no personal relationship between the bank and their customer. The app was originated by a commission-driven broker, some know-nothing commission-driven “sales representative” sitting in a bank branch somewhere, or on-line by the borrower him/herself, processed/approved by some “credit specialist” in a distant cubicle farm somewhere where they also generated the loan paperwork and emailed it to a title company for closing. “It’s just business”.

    Even better was the fact that banks could then dump these mortgages on the secondary market in a move they thought was washing their hands of things while making even more money on the transaction. Meanwhile, as a result, borrowers didn’t even know who their lender was. “It’s just business”.

    So, now, when the process comes full circle, the consumer is doing something the banks never even considered as a possibility – they are doing to the banks what the banks have been doing to them for years – invoking the “it’s just business” attitude and walking away.

    “What goes around comes around”.

  103. theblackdog says:

    With all of these people walking away from their houses and mortgages, what could it do to the rental market, especially when it comes to apartments?

    I get the feeling that the next time I want to move, I am going to have to start early because I am going to be on a waiting list with all of the people who walked away from their houses or condos.

  104. joemama321 says:

    @Techguy1138:

    I’m with you, sir. It is quaint to think that everyone has this moral obligation instilled in them to make a payment. Take the example to the hypothetical extreme. Let’s say that it turns out that exposure to latex paint, ceramic tile and carpet turned out to be extremely carcinogenic and continuing to live in houses containing them is a death sentence. Further, there is no salvage value. Therefore, all current houses are worthless in the secondary market. Adobe is the new building material of choice.

    Would the morally upstanding citizens continue to pay on their mortgages? Probably not if foreclosure was a contractual option.

    Want to fix this going forward? Let lenders supplement their collateral with a security interest in your 401(k). Let them garnish wages without a court order. Let them put your grandmother and kids into indentured servitude. As others have mentioned, bring back debtor’s prison. There’s still plenty of room in inland Australia. If the contractual consequences are heavy enough, people will a.) think twice before buying or b.) pay up.

    You can pine for it as much as you want, but the days of personal accountability and honor for their own sake are gone.

  105. snoop-blog says:

    @arch05: and what level of education do you need to be an asshat? because i’m not going to assume on how smart you are, just that you are an asshat. you’ll also notice, i refuse to capitalize. i hope that bothers you as well. but thanks for letting me know you read my comment, as that’s all i hope for.

  106. @Nighthawke:

    The Atlantic thinks so:

    [www.theatlantic.com]

    Interesting article on exurbs/low-end suburbs as the new slums.

  107. arch05 says:

    @snoop-blog: Just letting you know how stupid you sound (it’s a common occurrence). Carry on.

  108. stevegoz says:

    @WV.Hillbilly: No, that would be the dumb world where even more of our money goes to paying for prisons.

    Unless we could train the prisoners to become bankers. Then we’d be rich. Rich, I say, rich! [/replying to Hillbillies]

  109. cmdr.sass says:

    The only sure thing in this whole mess is that responsible people like me will somehow end up paying for the misdeeds of others.

  110. Bay State Darren says:

    Personal responsibility, FTW!

  111. burninator says:

    @Tracy Ham and Eggs: Youwalkaway.com the site featured that makes it “easy” to do so states ‘What if you could live payment free for up to 8 months or more and walk away without owing a penny? ” on the website.. I haven’t tried it myself so just going off of this website. As for me I DO have a moral problem with this and many other things… I just think its interesting what people pick and choose for what is taboo and what is not.

  112. chargernj says:

    it’s the banks fault for making bad mortgages, they weren’t trying to help people buy homes (maybe in a minority of cases they were). The banks were trying to make money. It’s the bank who made the bad investment by giving the loan in the first place. Sometimes investments don’t pan out and you lose your money. Sorry banks.

  113. D.B. Cooper-Nichol says:

    Both sides got incredibly greedy.

    I don’t admire consumers who are treating a home purchase as something they can walk away from simply because their bet didn’t pay off. I do think you have a moral obligation to stand by your word.

    But at the same time, the banks asked for this by making loans that didn’t incentivize people to stay in the damn homes and keep paying — i.e., a down payment large enough to qualify as “something to lose” and monthly principal payments.

    If the banks were smart, the interest premiums over the time these folks have been “renting” were enough to make up for the loss on these foreclosures. If not, I guess we’ll end up with a banking industry that’s smaller, poorer, but smarter, and for a while, chastened.

  114. elijah_dukes_mayonnaise says:

    @theblackdog: The rental market, if Florida
    is any indication, is getting cheaper as home prices fall. The
    apartments that used to go for $600 now go for $500, and you can’t
    swing a dead cat by the tail without hitting a For Rent sign. I’m
    noticing that more people are living in ad hoc group homes; below me,
    four adults are shoehorned into a 1BR place that really is too small
    for two people.

  115. BugMeNot2 says:

    Hey banks: EFF YOU!
    Don’t like it when consumers play hardball with ya, do ya? Heh.

  116. elijah_dukes_mayonnaise says:

    @CaptainConsumer: Brother, you are out of
    line. You’re a sockpuppet on the Consumerist forum, excoriating random
    strangers because you can’t deal with the financial irresponsibility of
    others. If you’re beyond ever getting caught in an untenable
    arrangement, you’re blessed, and infinitely better off than the scores
    of people who have signed the wrong paperwork during an optimistic
    moment, and fucked themselves over for years to come. Look inside
    yourself, exult in your myriad virtues, and become the captain of your
    heart.

  117. Why walk away when there are folks like me salivating to buy your house or take over payments?

  118. trujunglist says:

    @acasto:

    Why wouldn’t you blame the leader of the country for bad leadership? I don’t really understand why you think that is ridiculous. It’s not like the guy can say that the economy meltdown is solely HIS fault, or his neighbors fault, or the dude sitting across from him, or fuck, YOUR fault, because so many people and corps are involved in this thing. Usually the coach takes the blame when his team fails, even though 90% of the time it’s the individual players. Still, it’s up to the leader to actually.. you know, lead.

  119. Techguy1138 says:

    @arch05: Having class is knowing what the correct action is in a situation. It is also not pointing out others faults. That is called petty.

  120. trujunglist says:

    @arch05:

    You could, at the very least, attack his argument rather than focus on something so insignificant that you were able to catch his meaning anyway. Bravo!

  121. riverstyxxx says:

    Foreclosure is a bitch :(

  122. Me - now with more humidity says:

    @LorneReams: Nor have I — I was being charitable to the poster. It costs a bank $25K to 60K or more to foreclose. Plus their ability to lend is reduced by the value of each property. In cities like Detroit, banks are selling a lot of properties to investors for as little as 20 cents on their dollar (which is already a lot less than the market value). Banks lose big in these situations.

  123. Me - now with more humidity says:

    joemama: they ALREADY HAVE A SECURITY INTEREST. In the property.

  124. modenastradale says:

    @Tank:

    I see no reason to make this into some sort of morality-based character issue. It’s just a financial decision. You contracted with the bank; the bank took the risk that you’d default (and you paid the bank interest premiums to compensate for the risk); now, you’ve decided it’s more economically advantageous for you to default and deal with whatever contractual remedies the bank has. This is no different from how any corporation handles its day-to-day business.

    Why should an individual burden himself with irrelevant notions of character, “keeping one’s word,” etc. in these types of situation? No corporation would ever return the courtesy.

  125. ellis-wyatt says:

    There’s a lot of talk about personal responsibility, morality and ethics on here. It makes me wonder this: where is the line drawn when it comes to common behavioral issues in our world today?

    For instance, when is “bad credit” a problem – when you miss a $35 credit card payment by one day once in your life? When you get over 30 days past due on that debt? On any debt for any amount? On multiple debts? When you have a repossession? A collection? A judgment? Or do you have to get to a home foreclosure to be “irresponsible”? Or can you get clear to bankruptcy before that label fits? How about medical-related financial problems? How many of those are ok before they become “irresponsible”? Or does that type of problem rise above that label?

    How about other behaviors? Divorce is prevalent in our society and involves breaking vows to each other. Is that “irresponsible”? Is infidelity ok but not divorce? Then there’s the kids involved, if any – is the impact on them irresponsible? Immoral? Unethical? Some or all of the credit issues mentioned above often occur as the result of a divorce. Is that ok since it’s divorce related, or not? How about “co-habitation” in lieu of marriage in the first place – irresponsible? Immoral?

    Then’s there’s other behaviorial issues like alcohol and/or drug addiction. Is that kind of behavior ok as long as a person admits the problem and gets treatment? Does that then take them from being “irresponsible” to becoming “responsible”? Or not?

    How about cheating and lying, also known as “the games people play” and “office politics”? It happens all the time so does that make it ok?

    How about speeding? Irresponsible? Or is it ok if you have your seatbelt on and if everyone else on the freeway is doing it or if it’s just a couple of miles per hour over the limit? Technically speeding under those conditions is illegal yet the cops never stop just one car for doing it while letting everyone else speed by, so does that make it ok?

    Bad credit, divorce, co-habitation, alcohol/drug addiction, cheating, lying, office poltics (and there are other things that could go on this list) – are not illegal. But how about irresponsible? Unethical? Immoral? All of the above? None of the above?

    I’m just asking …

  126. gruffydd says:

    I bought a condo in 1993 for $101,000.
    By 1998 it was valued at $65,000.
    My brilliant ex-boyfriend at the time tried to convince me to walk away (even though I had a tenant that was making 95% of the mortgage payment)

    In 2002 I sold that condo for $195,000.
    And that allowed me to buy a SFR, that I made $138,000 profit on 2 years later.

    My current house is down 12.4% (according to Zillow) since I bought it in June 2006.

    I have a 30 year-fixed loan and am going to ride this out.

    As long as I can afford to make the mortgage payments, and until I actually put my house on the market, I view this all as theory. I’m staying put.

  127. Pro-Pain says:

    I spent more time monitoring my credit (from bs account collections and fraud, identity theft etc:) than it’s worth to me. Now I no longer care at ALL. I’m all for people walking away from any debt they don’t feel like paying. Who cares.

  128. Pro-Pain says:

    @ Tank. Whatever weirdo.

  129. disavow says:

    Where fraud happened, that sucks and the government should step in to arbitrate. In all other cases, borrowers should have known what they were signing, but their lenders most certainly did. Foreclosure is just another option with its own consequences.

    Kind of strange that some people who can still make payments are worried that their mortgages are underwater. Unless they’re planning to sell, the house still has as many walls and doors as it had six months ago.

  130. Techguy1138 says:

    @joemama321: Instilled moral obligation does not matter. What if instead of a willful walking away the default was caused by death or illness?

    The bank needs to be aware of the true value of the assets it loans against. This lax accountability by the banks helped drive up real estate prices, causing them even further grief.

    The fix is easy. The banks need to pay attention. They also need to provide the buyers with a potential for equity in the home.

  131. bearymore says:

    @ellis-wyatt: If your seriously interested, see Derek Parfit’s “Reasons and Persons” for about the best treatment of such questions around. Considered a classic. [www.amazon.com]

  132. jimconsumer says:

    I have zero sympathy for these deadbeats. Most of these people had no business buying a house in the first place. If you can’t pay a reasonable down payment on a fixed rate loan, you shouldn’t be buying real estate. Period. I have a couple of friends who bought a house with an ARM and a 3 year balloon because they couldn’t qualify for any normal mortgage. I told them not to do it, to keep renting. They ignored me. 3 years later the bank comes after them and they wonder why. Gee, didn’t see that coming (sarcasm). Now the husband is working two jobs to make the payments on their new ARM that they barely got through, at a super high interest rate. He hates his life and never sees his kids. I have no sympathy, I told them in advance, they knew better, but they ignored all logic because “it will just figure itself out.” No, life doesn’t work like that.

    These people like their house enough to suffer through the next decade of pain they put themselves in. Good; they should be paying for their stupid mistsake, instead of walking away from their problems. You don’t walk away from problems you create, you make them right.

  133. betatron says:

    Irrespective of your position on the morality of such a decision, the widespread adoption of such a strategy has terrible, corrosive consequences for _all_ homeowners, their equity, and community values in general.

    This behavior is BAD for society. Very Bad, and nothing good can possibly come from it. I leave it as an exercise to the reader to intuit what those consequences might be, being as they are, intuitively obvious to the most casual observer.

    For that reason alone it should be condemned and discouraged as vigorously as possible.

    The only thing worse than this behavior is the fact that we can ask the question and find people — more than a handful — who think it’s acceptable.

    Thus do we witness the yet another chapter in the collapse of our once great country.

    sorry, it’s just true.

  134. Imaginary_Friend says:

    An older co-worker of mine did this multiple times in the late eighties/early 90s. Whenever he felt the urge, he’d declare bankruptcy and walk away. A few years later, he’d apply for another home loan and do it again. The outrageous part was, the banks would fricken give it to him! He wasn’t Donald Trump either, just an average middle income American.

    These banks are just goddamn stupid. They thought that just because they paid to have the bankruptcy laws changed in their favor, that they could keep making stupid loans and rolling in profits. Ridiculous! Why should honest, hardworking Americans have to bail them out yet again?

    I have no sympathy for the banks or the overpaid scum who run them.

  135. Techguy1138 says:

    @betatron: It’s worse for society for the homeowners to stay.

    If these people are honestly looking at loosing their home no matter what they need to walk away. Waiting until they lack the financial resources to keep them healthy or in ANY place to live takes them out of the workforce.

    I’d rather the bank eat a bad loan than see workers windup on welfare.

    They bailing out before they are out of cash allows the economy to stay fairly liquid.

    Walking away IS acceptable because the banks then take responsibility for the home. They will take a loss on the homes driving home prices down. The lower prices will reflect the actual value of the home. Loans being made will be made towards the actual value of the home and not some kind of wishful thinking.

    Walking away will ensure that corporations behave better,more responsibly, as a part of society.

  136. lightening_fast_draw says:

    Banks and mortgage brokers set themselves up for a fall and now they are falling. Instead of making and servicing mortgages as they use too, lending institutions laid them off on Wall Street for a nice fee. Consequently, they had no incentive to take the credit quality of their borrowers seriously. It is a little late in the game to muscle a homeowner who does not have the resources to support these loans. Lenders should have thought about credit quality before making the loans.

  137. wring says:

    @revmatty: iawtc

  138. humphrmi says:

    Wow, 135 messages and I’m just now jumping in. I must be lazy today.

    Let’s call them Mortgage Jumpers. Like flippers, they are the worst scum of the earth. Not just because they screw the financial institutions that they promised to pay back, but because they screw their neighbors in the process. Abandoned houses attract vermin, insects, vagrants, drug dealers, and other general scum. Cities now have to take care of your land for you. Most banks won’t unless they’re dragged into court. Your financial stupidity leaves your neighbors living next to a developing slum. Great work, Mortgage Jumpers, you fucked yourself, your bank, and now your neighbors. Is there anyone else you’d like to fuck to get what you want?

  139. SoCalGNX says:

    Yeah and those evil loan brokers probably waterboarded them into those bad loans!

  140. Paytriot says:

    Once again in America, the rich people are left to bail out the poor and oppressed.

  141. notallcompaniesareevil says:

    Second liens and mortgage values for more than 80% of the house’s value are more expensive than first lien, conforming loans. Why? Because this can happen. These people make business decisions and they came out on top at the expense of the bank. What’s the problem?

    However, I think this is a perfect example of what people are not realizing: the cause of the mortgage “meldtown” is overlevered consumers, not mean banks. And at least in this case, it is the banks that take it on the chin. I just wish people would stop demonizing the banks.

  142. goller321 says:

    @vastrightwing: I’m not sure from your name, if you’re a right wing supporter or critic, but you make a very valid point. It’s a business decision. So many pro-corporate types decry this as a foul, yet have no problem when businesses do the very same thing. They cry that corporations shouldn’t have to fulfill their obligation to workers’ pensions, because it’s hurting the company, but they whine like bitches when individuals use the same tactics. Hey, these people got sold a bill. Some where greedy, some naive, but the mortgage companies, Realtors and banks KNEW what they were doing and theirs was in the name of greed. No pity for them here.

  143. goller321 says:

    @Paytriot: You can’t be serious?!? Most rich people are rich because they’re scamming the system. I hope they do take it on the chin. In your reasoning, the rich should have been smart enough not to have gotten mixed up in this mess from the get go… it’s their own damned fault.

  144. Tank says:

    @david_consumerist: That would be a valid argument if people didn’t need a place to live. From an “investment” standpoint, renting isn’t any better than continuing to pay on a loan that’s secured by a home with declining value. The difference is eventually the balance of the loan will be lower than the value of the home. Rent – you pay that forever.

  145. ellis-wyatt says:

    @bearymore: I was actually interested in hearing from those who had posted their comments on this thread about the subject. I guess I hit too close to home for many of them to respond.

  146. BlazerUnit says:

    @crabbyman6: Skipping child support can lead to criminal prosecution in some cases, so that’s not a good example. They won’t put you in jail for skipping on Credit cards.

  147. BlazerUnit says:

    @ellis-wyatt: Brilliant post.

  148. BlazerUnit says:

    @CaptainConsumer: It’s funny how the exact opposite of the this position seems to come up when a new wireless tower needs to go up, or even worse–someone dares to build a Habitat for Humanity for a low-income family. All of a sudden, property value matters again.

  149. BlazerUnit says:

    @storm: Why does society expect one standard from people and another from business?

    No business worth its salt skips a beat cutting out a bad investment, or going bankrupt to ditch pesky pensions or bad debt–but people are somehow stigmatized for the very same behavior.

    Let yourself be locked into that kind of thinking if you want, but you will always be poor and content with only moral standards set by others. People need to start treating their personal finances like they are a business. That means cutting bad investments out sooner rather than later, even if –ooooooo– they have to deal with a foreclosure.

    Corporate america would (and is legally required by its fiduciary duties to its shareholders) do no different.

    How dare you compare the rights or corporations to that of ordinary people! Wachovia, Wells-Fargo, Bank of America, Citigroup, etc. all have families to feed. They can’t be expected to cut executive pay or trim political lobbying any more than you can ask someone to risk his/her health by working multiple jobs to keep a silly extravagance like walled housing with indoor plumbing! Just wouldn’t be fair!

  150. BlazerUnit says:

    @Paytriot: The obvious irony being that the plight of the poor and oppressed can often be traced back to the actions of…(gasp)…rich people, trying to get richer!

  151. moneypitinoc says:

    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.

  152. memphis9 says:

    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…

  153. synergy says:

    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.

  154. gekkot says:

    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.

  155. deadlizard says:

    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.

  156. Anonymous Commenter says:

    @WV.Hillbilly: yep, bank’s fault.

  157. Highrollinwooded says:

    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!!

  158. UdeleNerpy says:

    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.

  159. Anonymous says:

    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.