Ruth Lee
So… what happens when the academics encourage people to walk away from their homes? With almost a quarter of Americans underwater on their home….what could go wrong? This professor is telling Americans to emulate Wall Street… but I question the wisdom. Wall Street affects macro…while being this cynical and self-serving in a local community is definitely micro. Sage words – don’t mess where you sleep.
If we are okay with this “it’s all about me” attitude, then we cannot blame Wall Street for the same thing. I am horrified by the notion that you should abandon your “inconvenient” obligations… there’s no cost…right? But there is always a cost… always… from destruction of the local economy – you know, the one we actually live in – to the disintegration of the wealth and investment of our friends and family – to the erosion of local community banks… Fabulous idea!
Right now the government is our lender, because we screwed up so badly (IN HOUSING) that the rest of the world won’t invest. So the best way to court investors? Default! That promise to pay was only a “sort-of” promise… you know, with fingers crossed behind your back…predicated on only favorable and optimistic assumptions of infinite appreciation and 50% bonuses!
How do we engender investor confidence when risk is solely shouldered by the investor? When we don’t even retain the ethos that a promise to pay is a personal matter? That integrity is just an ancillary quality for chumps when it comes to credit. (Sounds very subprime doesn’t it.)
Buyers consider abandoning troubled mortgages
December 1, 7:18 AM Baltimore Real Estate Examiner Rashida Bandy
Despite stabilizing home prices in many areas, foreclosure numbers are still reaching record numbers. According to First American CoreLogic, a company that provides real estate information data, 23 percent of American homeowners have negative equity in their homes, classifying almost 10.7 million households as “underwater borrowers.” The 5.3 million of these households which owe at least 20% more than the home’s value are more likely to default on their mortgage loans and end up in foreclosure status.
In fact, the mortgage dilemma some homeowners are now experiencing has led to an interesting debate about whether underwater borrowers should simply cut their losses and walk away from their homes (and their mortgage payments). Brent White, an associate professor at the University of Arizona, thinks it is a mystery that more homeowners aren’t abandoning their homes. In a discussion paper White wrote, “Homeowners should be walking away in droves.” Trends show that homeowners under 30 (who are likely unattached to their homes and lack strong community ties) are more likely than other age groups to feel it’s okay to simply walk away.
The bottom line, however, is that a resulting surge in foreclosures will affect progress in the real estate arena if left unchecked. As a result, the U.S. administration is boosting its foreclosure-prevention efforts. On Monday a plan is expected to be announced that will crack down on mortgage companies who aren’t fully committed to assisting borrowers at risk of losing their house. Currently, companies that lower payments for troubled borrowers received financial incentives. The new plan will likely withhold these incentives unless mortgage modifications are made permanent.
What do you think? Is it okay for borrowers to simply walk away from their mortgage?
January 7th, 2010 at 4:48 pm
No, Ruth, it is not okay for borrowers to simply walk away from their mortgage just because it is inconvenient, or even because they are upside-down.
Why?
1) Well, because it is wrong. Remember the old adage, ‘Your word is your bond’?
2) It is a terrible example for our kids. Keep your promises…that is what we tell our children. We need to model that behavior.
3) Because it does not feel good. It weakens your confidence in yourself when you do not meet your obligations.
4) It impacts the community.
Yes, there are some circumstances where it is simply not an option. You cannot afford to make the payments and have made every effort to restructure the debt, at least temporarily. That is it…the only reason.
I train lenders on ‘Tax Return Analysis in a Tough Lending Environment’ and help them say ‘yes’ to good loans. At the CUNA Lending Council Conference in November several senior lenders were saying it is the A and A+ borrowers to watch out for. Many of them have never had a credit problem and have no idea how to proceed if you can’t make it work. They are more likely to give back the keys with no warning.
Interesting…is that what you are seeing?