Sunday, January 17, 2010

How to Walk Away From A Mortgage - Unless "Honor Bound" Was Part of That Contract

The US ended 2009 with enormous housing problems, including 25% of all US mortgageholders owing more than the house is worth, and 50% of mortgageholders expected to be underwater by 2011.  And RealtyTrac projects up to 3.5 Million foreclosures in 2010.

Homeowners are starting to act like banks and "strategic default" aka "walking away" from a mortgage is becoming more frequent. 

The phenomenon picked up steam last November when Arizona Professor Brent White published a paper whose conclusion was that homeowners should be walking away in droves.

In the past week, the issue hit the mainstream big time.  An article in the New York Times exhorted underwater mortgage holders: Go Ahead!  Walk Away From Your Mortgage!

The Business Insider weighed in with Yes, It's Ok to Walk Away From Your Mortgage and gave a step-by-step guide to Walking Away From A Mortgage.

And then there's the Colbert Report, looking at "Honor Bound."

The Colbert Report
Mon - Thurs 11:30pm / 10:30c
The Word - Honor Bound
www.colbertnation.com

Colbert Report Full Episodes
Political Humor
Economy

8 comments:

dowtntownenvy said...

Honor and morality are probably keeping a lot of underwater homeowners from bolting, but I have a question. Since having a foreclosure is supposedly devastating to your credit rating, is this a factor, or are there so many happening that banks will re-work this issue too.

After all, they control credit bureaus,and it is obviously not hurting their credit scores to abandon loans and default, or is it just as damaging to them as it is a single person?Just wondering.

Bleed It said...

Underwater new listings:

MLS 472754 112 Morgan Court for $369K from $550K Gaffney homes. Hey...they need cash or something? ;0)

MLS 472853 1687 Royal Oak Court $239K less that what seller paid

Anonymous said...

The strategic defaults (and we are in the pre-game warm up stretch on this), if there are enough, will ultimately hurt the banks credit ratings from the likes of S&P, Fitch, etc. Bank downgrades are inevitable. Basically the loans that are not getting paid in full become toxic loans and stay on the books of the lenders until foreclosure/short sales occur 6-12 months down the road, maybe longer than that as more and more strategic defaults occur. And second lien holders, fuget about it...

Real C'ville - The Bubble Blog said...

Agree on the "pre-game warm up stretch" - this thing is just getting going. Housing is already leading the country down to a double-dip recession, and more people are going to save themselves, and their families.

Credit ratings/scores will mean different things to different entities. There's a link in this blog's sidebar about how you can start rebuilding credit and buy another house in as little as two years:

http://www.latimes.com/classified/realestate/news/la-fi-lew11-2009oct11,0,648573.story

The thing is, even doing an Obama mortgage mod, the HAMP, lowers a credit score, because banks/servicers report that the entire balance isn't being paid. Many people enter this program to preserve not just "ownership" of their house, but their credit rating--but that's not what's happening.

Anyway, HAMP in current format is failing
http://tinyurl.com/yanw93x

There are so many people who have "damaged" credit/FICO scores--that there will be adjustments (analysts say) is interpretation of the numbers.

And hey, isn't that what FHA lending is for? Low score, low down payment, to buy a house "worth" up to $417k

Reason #87 why this market is headed for lower prices and lower sales in 2010: too many properties can't qualify for an FHA loan because they cost too much

The "First Time Homebuyer" will only carry sales so far, and their numbers are shrinking
http://realcville.blogspot.com/2010/01/december-sales-and-contracts-in.html

As for banks' credit ratings: that's why the Fed requests Treasury to print money

www.lolfed.com

Real C'ville - The Bubble Blog said...

And this just in: via WSJ

FHA considering raising its standards

http://online.wsj.com/article/SB10001424052748704586504574654710172000646.html

default rate of 24% on 2007-2008 loans!

downtownenvy said...

Thanks Bubblers! I suspected as much, but wasn's certain. The good news just keeps coming doesn't it?

Anonymous said...

Yeah, anytime one does not pay as agreed, the credit score is hit, whether loan mod/short sale/foreclosure, etc. It is just a matter of how much it gets hit, whether its a little or a lot it will certainly affect ones ability to buy a house in the next several years. I suspect that it is fear that credit scores will take a nosedive if you modify a loan/sell short/even strategically walk away (maybe even more than the whole honor thing) is what keeps people from doing anything.

As an aside, I know of two families that are walking away from their houses in a more pricey northern Albemarle neighborhood so the wheels are in motion and no neighborhood is safe...

Bleed It said...

Underwater lists: Realtor Amy Toomey's been trying to unload this for years 640 Rocks Mill Court 3 acres $2Million

4885 Mechums River Road $299
MLS 473030 Foreclosure bank underwater on this one

975 King William $525
MLS 472881

1092 Amber Ridge rd $199k
MLS 472904

2774 Craigs Store $199 bank uw 06 price 135k
MLS 472931 Bank is underwater on this one

935 Raymond Road $469.9
MLS 472899

298 Albert Court $185
MLS 472856

2300 Angus Road $365K
MLS 472912

313 Eastbrook $189k
MLS 472927 Foreclosure