By Dawn Wotapka
The housing crash has come to this: With so many Americans owing more than their homes than they’re worth - in some cases hundreds of thousands of dollars - more are debating walking away, or halting payments they can afford and waiting for foreclosure.
Statistics don’t exist because no one declares their reasons for walking away, but a handful of papers have suggested that there’s something to the anecdotal reports about borrowers “strategically” defaulting on their mortgages.
A top industry consultant suggested today during a meeting with Developments that such defaults may be more common with the younger set (under 30) that didn’t grow up with the pay-your-mortgage-before-everything-else mentality. This generation is more likely to view owning simply as an investment, says John Burns, president of John Burns Real Estate Consulting. Culturally, “it’s more acceptable than it was” during previous downturns, he says.
Indeed. A few months ago in Las Vegas, I met a 26-year-old man who said that in 2007, he put no money down for a $250,000 loan that got him a 1,400-square-foot, four-bedroom home in Northwest Las Vegas. When he spotted a nearby home with the same floor plan-but with a pool and guesthouse - for $100,000, he moved out in January and gave it “back to the bank.”
“Why would I keep paying on a $250,000 loan?” he asked. “I would not ever buy a house again.” (We tried to follow up with this guy, but his number had been disconnected.)
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Nice going. If you made a bad deal, just walk away. Who's going to loan him even 100,OOO for the other house? No one, not after he defaults on the first one. This dork's credit is toast. Hope he has a nice REI tent.
ReplyDeleteWalking away from a house has nothing to do with morality...unless the borrower never intended to pay or lied on the application (which happened a lot during the boom).
ReplyDeleteMortgages are contracts with built-in damages clauses. When that bank gave that kid a $250K loan with no money down, they knew darn well that if the market went belly up, there would be nothing keeping him from walking away. On top of that, it's not like they would be offering to split the profit with him if he foreclosed because he lost his job, and the bank sold the house for more than $250K. They are just as at fault as he is.
Besides, I believe Nevada is a recourse state, so if/when the bank sells the house for less than the $250K, I think they can go after him for the difference. So, he may not be out of the woods yet.
Both parties knew the risks...and both parties accepted them.
As far as his credit goes, the FICO system is a complete mess right now anyway. The farther we get into this thing, the more people they'll be with poor credit. Before too long, creditors (for houses and cars) are going to have to work with these people - otherwise, they will have no customers.
In the meantime, he can probably rent that $100K house for $500 per month. It's probably a bit nicer than that REI tent.
Home "Ownership"... the new lease contract.
ReplyDeleteOne of the wonderful exec orders is that your home can be taken away from you for the good of the government upon their needs and desires.
ReplyDeletePrivate home ownership is a delusion.
Hey mister banker @ 7:16:
ReplyDeleteMorality and money don't mix, as you so like to say.
It's the same problem on the bottom and the top.
ReplyDeleteThe bankers wanted to make loans and keep the profits but dump the loss on the taxpayers. There should have been no bailouts.
The young want to personalize the profits of home ownership and dump the loss on the other borrowers. There should be no walking away.
A contract is a contract and a debt is a debt. It's only the stupid entitlement generation that thinks otherwise.
Yes, home ownership is a delusion as eminent domain is misused all over; also, can't blame folks walking away if there is no equity and housing is devalued...These banks/lending outfits (mafia FRS-CFR run )are stuck with all this worthless crap (Fla, CA, Nev, MI, etc)so, let lenders pay em off then rent em out, or take a loss and re sell them..those crooks knew this would happen and would later backfire. Laura Ann
ReplyDelete