Foreclosure by Choice
When did the mentality about walking away from the obligation of a home change? Maybe the change started when the possibility of owning a home was made so easy that anyone with a pulse and a blue ink pen could qualify for a loan.
Home ownership was no longer a challenge for most consumers. When the loan programs were created to get nearly anyone into a home the banks unknowingly taught consumers that home ownership was no longer a big deal. It was no longer an earned right or an accomplishment to be revered.
Those who purchased just because they could sit upright and sign the dotted line didn’t mentally or morally commit to a home, let alone the debt that came with it. Their debt was nearly invisible, anyway. It was just paper until housing values started falling or their interest rate reset.
The so-called second wave of foreclosures is anticipated and feared like aftershocks of an earthquake. We still have a hefty pile of loans with resetting mortgage rates lying around and it’s not exactly a secret. Neither is the fact that Florida is one of the top three states with woeful tales in the housing crisis.
There’s a fair amount of home owners who weigh their options and essentially make a business decision to cut and run. According to credit bureaus there were over 585,000 strategic defaults in the United States last year. Not surprisingly, Florida had more than its fair share. Strategic default, in case you didn’t know, is just a sanitized way to say that a borrower is walking away from their home loan even when they can still afford it.
It may surprise you to know, especially in this economic downturn starring double digit unemployment numbers, that the folks who do a strategic default or a “walk away” generally have good credit and the means to continue repaying their debt. The borrower just makes a choice to stop paying and force the bank to foreclose in an effort to shake off the mortgage on a home that is upside down in equity.
Some people see it as a way to game the system. Maybe it is, but it wasn’t the first game in this financial fiasco. The consumers are the end users in a gamed system that didn’t work.
Homeowners see the banks getting bailed out and they’re still holding a mortgage on a home that worth considerably less than they owe on their mortgage. Throw in a soon to be resetting interest rate, increased payments and little relief in sight and it makes it easy to turn on the villainous bank and leave them holding the bag.
Sure, there’s credit damage for choosing walking away from a home. Maybe in the eyes of the walk away homeowner the credit damage isn’t as bad as the hundreds of thousands of dollars of debt on a home they may have not been so committed to in the first place.
Like any other mass activity, maybe there is a sense of safety in numbers. Since everyone who was anyone was able to get on board the home loan express they’ll find it easier to get off and just walk away simply because it seems like everyone else is doing it, too.
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Real Life in Bonita Springs is a project by Chris Griffith dedicated to writing useful blog posts for consumers about the Bonita Springs, Florida area. Find out what it is really like to live in Bonita Springs, Florida by reading about our fair city. You’ll get the latest in local real estate information, Bonita Springs real estate market reports and a little bit of humor. If you have topic ideas, feel free to request a story about the idea, after all, this site is just for you.
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Comments
Tags: bail out, bank, foreclosure, home, Mortgage, Strategic Default, Walk Away
Having a current mortgage and good credit does NOT always mean that someone has “means to continue repaying their debt.”
Sure, some people are just walking away from an obligation and willing to take the hit to their credit. But others? I could be current on my mortgage and lose a partner to death or divorce. I could be current and need to move for a job. I could be current and need to move because my child is disabled and needs services not offered in my school district. I could be current and need to move to care for an aging parent.
And then when I go to my bank and say I need help — a loan modification, a short sale, etc., guess what they will tell me? We can’t discuss any changes because your mortgage is current. Those services are ONLY offered to homeowners in default.
You can’t just look at the numbers in these cases and make a mass judgment. While to some people it may simply be a business decision, I would bet that in most cases there are real people – and real problems – behind them.
Leigh, I don’t doubt there are real people with real problems out there. There are also a good amount of people that don’t care about abandoning their debt. That’s what this column is about. It’s limited to 500 words for the paper or, believe me, I’d write a thesis and include the other aspects.
I’m a strategic defaulter. My moral justification for it is that the banks are responsible for the housing bubble therefore they can be left holding the bag. If they would have required me to put a down payment I wouldn’t ever consider walking away, but I have no skin in the game. Why would I stay in a place with -$250,000 in equity? I’d never break even on the deal when you consider all the interest I’d pay for the next 40 years. If the banks policies hadn’t pushed up prices I would have been able to afford a normal down payment of $20-30k, but because of the bubble you suddenly need $80k to have 20% down. Saving that kind of money while renting is nearly impossible unless you are real wealthy. Banks are nothing but a drain on the economy, their whole business model is to extract as much money out of us as they possibly can while providing as little as possible. I certainly don’t feel bad doing this to them.
DG,
Thank you for your contribution. It is appreciated.
On another note… Great picture. Where was that taken?
Dean
.-= Dean Piccirillo´s last blog ..Does Your Employee’s Financial Health Impact Your Bottom-line? =-.
Imperial River in Bonita Springs, Florida.
I built my home, did a lot of the work myself. I kept the mortgage as low as I could. And I still ended up with a 6 year old home valued at $40K with a $110K mortgage. Why keep it? I can pay, for now anyway, but why. I wanted a home to live in for many years, not a quick flip investment. Now it makes no financial sense to keep it. When it come to money and business there is no “morality” just ask anyone working in Wall Street. If the investment is bad, get out. The idea of leaving my home makes me sick. The idea of paying a mortgage for the next 10 years without a drop of equity to show for it makes me sicker.
Thank you for your contribution to the post, DanaLee.
I made a 10% down payment and threw $20k at my second to pay it down faster. But by value has dropped in half and it makes no sense to keep making the payments on a losing proposition. Thanks for the good column.
Thank you for stopping in.