Walking away from a mortgage, This cannot be good.

[dumpster56]

Troubled borrowers are walking away from their homes - Feb. 6, 2008

 

[Retire Soon]

It appears that investors are walking away from their mortgages more frequently than individuals who live in their home. The Fair Isaac spokesperson says that walking away from your mortgage will do less damage to your credit than someone who tries to make payments and is unable to do so and ends up in bankruptcy. To be sure, a foreclosure will hurt ones credit credit for only two years, while a bankruptcy will be damaging for three years.

It seems apparent that a trend has begun in walking away from home mortgages, especially when the borrowers have 100% financing. The term "jingle mail" has even been coined, meaning borrowers who simply mail their keys back to the lender.

What I found most disturbing about this article, is someone who owns a home with an upside down mortgage. They decide to buy another perhaps comparable home, but maybe at a recently reduced price of as much as $150,000. They move into the home they buy and allow their original home to go into foreclosure. In this case, they maintain home ownership, but do not have to wait two years to restore their credit; as would have been case had they walked away from their mortgage without buying another home first. Apparently, this is now happening most often in states like California that has laws that protect borrowers on foreclosed homes. That is, if the lender sells the foreclosed home for less than the mortgage, the borrower does not have to pay the difference back.

This problem of more people walking away from their home loans is further exacerbated by the federal government recent passage of a law that does not require the borrowers on foreclosed properties to pay taxes on the amount of the mortgage that is forgiven from the lender.

In the above cases, it appears that state and federal governments are adding to "free falling" home prices in some areas by not forcing defaulting borrowers to take financial responsibility. We need to hope that this trend does not become out of hand. Unfortunately, with human nature being what it is, it probably will and this is specifically one of the contributing factors that will cause median housing price in the United States to drop another 30% by the end of 2009.

 

[Zoocat]

This problem of more people walking away from their home loans is further exacerbated by the federal government recent passage of a law that does not require the borrowers on foreclosed properties to pay taxes on the amount of the mortgage that is forgiven from the lender.

In the above cases, it appears that state and federal governments are adding to "free falling" home prices in some areas by not forcing defaulting borrowers to take financial responsibility. We need to hope that this trend does not become out of hand. Unfortunately, with human nature being what it is, it probably will and this is specifically one of the contributing factors that will cause median housing price in the United States to drop another 30% by the end of 2009.

I agree with the above. I also wonder if these new laws will cause further tightening of mortgage credit. Why would lenders relax requirements again when they take such a huge hit when the borrower can walk away so easily?

If my assumption is correct, then many many fewer people will be able to become homeowners. In that case, there will remain a large numer of houses for sale on the market. Prices will have to decline substantially for people to afford them with the more rigid mortgage standards.

 

[al_bundy]

It appears that investors are walking away from their mortgages more frequently than individuals who live in their home. The Fair Isaac spokesperson says that walking away from your mortgage will do less damage to your credit than someone who tries to make payments and is unable to do so and ends up in bankruptcy. To be sure, a foreclosure will hurt ones credit credit for only two years, while a bankruptcy will be damaging for three years.

It seems apparent that a trend has begun in walking away from home mortgages, especially when the borrowers have 100% financing. The term "jingle mail" has even been coined, meaning borrowers who simply mail their keys back to the lender.

What I found most disturbing about this article, is someone who owns a home with an upside down mortgage. They decide to buy another perhaps comparable home, but maybe at a recently reduced price of as much as $150,000. They move into the home they buy and allow their original home to go into foreclosure. In this case, they maintain home ownership, but do not have to wait two years to restore their credit; as would have been case had they walked away from their mortgage without buying another home first. Apparently, this is now happening most often in states like California that has laws that protect borrowers on foreclosed homes. That is, if the lender sells the foreclosed home for less than the mortgage, the borrower does not have to pay the difference back.

This problem of more people walking away from their home loans is further exacerbated by the federal government recent passage of a law that does not require the borrowers on foreclosed properties to pay taxes on the amount of the mortgage that is forgiven from the lender.

In the above cases, it appears that state and federal governments are adding to "free falling" home prices in some areas by not forcing defaulting borrowers to take financial responsibility. We need to hope that this trend does not become out of hand. Unfortunately, with human nature being what it is, it probably will and this is specifically one of the contributing factors that will cause median housing price in the United States to drop another 30% by the end of 2009.

last year on some of the housing bubble blogs they predicted that this would happen with the laws passed. surprised the geniuses with the harvard mba's couldn't predict it either.

but then again all they know how to do is read ratings reports

 

[lazygood4nothinbum]

my brother is involved in a situation where it turns out that the scamming previous owners of a ranch (where my niece's horse is boarded) had sold it from the husband to the wife and then both walked away with the bank's quarter million flip fee after unsuccessful in their attempts to reflip it on the market. my sil moved to purchase the preforeclosure, as having their horse there she heard that the previous owner was abandoning the property.

only now the mortgage company is suspicious of my brother & sil who are simply trying to do a str8-up deal with them and buy a foreclosed property. sil was getting very upset but then i recently learned this company is under state investigation for bubble fraud and so informed her that she should not take their scrutiny personally.

so in this case the previous owners having walked (run) away might just screw up a subsequent sale as well.

 

[armor99]

I find it amusing how quickly those who begged for sympathy and forgiveness for not "knowing any better" about their loans, are now the same people using all of the laws and government programs to their distinct advantage. Being just "a little bit responsible" for yourself, and your actions, is sort of like being "a little bit" pregnant. You either are all the way... or you are not. Unfortunately, like most things today.... people that are responsible, in one way or another, wind up paying for those that are not. Want to stop the so called "jingle mail"? Create a law that says that people choosing to do that, cannot legally own any property again for 10 years. See if most will have a change of thought. Most people that did subprime loans probably had really bad credit to begin with. Why should they care if their credit score gets wrecked?. When you provide an environment where there are no negative consequences, why are people surprised when others take advantage?

 

[myself]

I think it's both the lenders (who opened up their doors with "all the money"), AND the borrowers for not performing due diligence.
People thought the housing market would keep screaming along (much like the stock market of the late 90's).

That's OK. It just means that we can be more selective when we buy houses to fix up and resell, and get them for 60¢-70¢ on the dollar. We picked one up for 50¢/dollar to update the disgusting thing (think very, very limited electric, and hideous looking walls that have to be literally torn off).

 

[ladelfina]

www . youwalkaway . com

no comment; speaks for itself

 

[Retire Soon]

www . youwalkaway . com

no comment; speaks for itself

I find it both disturbing and offensive that our government helped enable an organization such as this coming to come into existence with the Federal Tax Relief Act of 2007. My life would have been a lot easier too, if I had been granted forgiveness on my student loans and then not even have had to report that as income to the IRS.

 

[barbarus]

What about the prudent who refused to buy vastly overpriced properties, but hung on to their funds instead?
What will be their role in this fiasco?

Perhaps to supply the money to straighten things out, in the form of taxes and lost interest, no?

 

[Notmuchlonger]

What about the prudent who refused to buy vastly overpriced properties, but hung on to their funds instead?
What will be their role in this fiasco?

Perhaps to supply the money to straighten things out, in the form of taxes and lost interest, no?

They are still in better shape than the people who purchased the inflated properties.

 

[Retire Soon]

They are still in better shape than the people who purchased the inflated properties.

You've made a very valid point!

edit: typo

 

[samclem]

Create a law that says that people choosing to do that, cannot legally own any property again for 10 years.

Armor, I wouldn't have expected this from you. Why would you favor introducing the government into this issue? Hey, if a deadbeat finds somebody stupid enough to lend them money again, why is that the government's business? The lender made a bet (that they lendee would pay the loan back) and that bet did not pay off. Let the marketplace sort this out--nothing will force discipline into the system faster than a few lenders getting burned. Maybe they'll start screening applicants. And, when applicants learn that folks lenders are tightening up, they'll think longer before mailing back the keys.

And, just to extend the point--why should there be an arbitrary limit for how long a foreclosure or bankruptcy stays on a credit report? Credit reports are produced by private companies, they should be free to put whatever (valid) information they want on that report, and keep it there as long as they choose.

The problem starts when the government takes money from responsible taxpayers in order to bail out those who took a risk and lost.

 

[barbarus]

They are still in better shape than the people who purchased the inflated properties.

I'm sure that's what the government will tell these whiny ingrates while even now cooking up schemes to help the "victims" keep their Mcmansions.

 

[ladelfina]

What about the prudent who refused to buy vastly overpriced properties, but hung on to their funds instead? What will be their role in this fiasco?

To pay the taxes that bail out the banks and insurers.. and to cough up 20% of their nest egg to interest rate drops, the plummeting dollar and hidden inflation!

 

[boont]

Walking

I guess what I find funny is that business people walk away from failed business ventures all the time and they are considered smart business men.

If, of course, you are just some poor slob who has to give up your house, well we hate them, right?

You folks amuse me greatly.

b.

 

[eridanus]

I guess what I find funny is that business people walk away from failed business ventures all the time and they are considered smart business men.

If, of course, you are just some poor slob who has to give up your house, well we hate them, right?

You folks amuse me greatly.

b.

Corporation: An ingenious device for obtaining profit without individual responsibility.

Ambrose Pierce

 

[TargaDave]

I guess what I find funny is that business people walk away from failed business ventures all the time and they are considered smart business men.

If, of course, you are just some poor slob who has to give up your house, well we hate them, right?

You folks amuse me greatly.

b.

To be fair most new business ventures involve equity investing, not loans, and the high risk factors are constantly factored in. If they are not, shame on the investors. The vast majority of entreprenuers have plenty of their own sweat, money and reputation in the game, and tend to hang in until the last gasp of air is taken, before walking away. Even with megacorps many careers are on the line with a new venture. Very different from a low downpayment no income check loan on a property you might have barely seen 8 weeks earlier provided by a lender who doesn't know you from Adam.

 

[al_bundy]

the banks brought it on themselves

they made buying a house as easy as shopping in wal mart, but forgot the fact that wal mart has a very liberal return policy

 

[CCdaCE]

<snip>

What I found most disturbing about this article, is someone who owns a home with an upside down mortgage. They decide to buy another perhaps comparable home, but maybe at a recently reduced price of as much as $150,000. They move into the home they buy and allow their original home to go into foreclosure. In this case, they maintain home ownership, but do not have to wait two years to restore their credit; as would have been case had they walked away from their mortgage without buying another home first. Apparently, this is now happening most often in states like California that has laws that protect borrowers on foreclosed homes. That is, if the lender sells the foreclosed home for less than the mortgage, the borrower does not have to pay the difference back.

<snip>

I'm confused. If the bank lends you money for one home you can't afford, and now they lend you more money... how is that anyone's problem but the banks?

"You can't fix stupid."

Kiyosaki would've done a 1031 exchange!

-CC

 

[UncleHoney]

I'm confused. If the bank lends you money for one home you can't afford, and now they lend you more money... how is that anyone's problem but the banks?

"You can't fix stupid."

Kiyosaki would've done a 1031 exchange!

-CC

I thought the same thing. But some of them have good credit and can afford two homes so they buy the second house and bail on the first one.

Not many would qualify for two mortgages so this would be limited to a small percentage of people. They must be willing to take a ding on their credit rating for a few years just to get lower payments and get rid of a white elephant. There may be a hidden flaw somewhere that will come back to haunt them later. Looks risky to me.

 

[Retire Soon]

I'm confused. If the bank lends you money for one home you can't afford, and now they lend you more money... how is that anyone's problem but the banks?

"You can't fix stupid."

Kiyosaki would've done a 1031 exchange!

-CC

The problem is that it eventually becomes everybody's problem. When the buyer moves into the new home, the one he vacates will soon become another foreclosure. When a homeowner in his old neighborhood applies for a home equity loan or refinances their existing mortgage, there may not be sufficient equity, due to excessive foreclosures driving down home prices. A case in point is San Diego County. Home prices there have dropped 13% in the past year. In the communities of Spring Valley and Chula Vista prices have dropped 30%, largely because of numerous foreclosures on properties with subprime loans. This situation is great if you're purchasing property, but not if you're refinancing a 1st, taking out a new 2nd or have your home on the market.

 

[CCdaCE]

The problem is that it eventually becomes everybody's problem. When the buyer moves into the new home, the one he vacates will soon become another foreclosure. When a homeowner in his old neighborhood applies for a home equity loan or refinances their existing mortgage, there may not be sufficient equity, due to excessive foreclosures driving down home prices. A case in point is San Diego County. Home prices there have dropped 13% in the past year. In the communities of Spring Valley and Chula Vista prices have dropped 30%, largely because of numerous foreclosures on properties with subprime loans. This situation is great if you're purchasing property, but not if you're refinancing a 1st, taking out a new 2nd or have your home on the market.

So, I should feel sorry for an owner in a "hugely appreciated area" that wants to use their house as an ATM?

If you're selling your house in the same area, what does it matter what it used to be worth? Just because potatoes were $5 a bag yesterday and you can only get $3 for a bag you wish to sell today... that's the risk you take when try to sell potatoes.

-CC

 

[Retire Soon]

I am just happy to have been able to sell my bag of potatoes in East San Diego County in July 2006.

 

[Texas Proud]

Just a curiousity question on this......

Will the people who said there was not a real estate bubble come out now and say you were wrong

or the ones who kept saying house prices were not going down concede?

Just curious if you will admit when you are wrong...