The Rise of the Mortgage 'Walkers'

[ursi]

WSJ:

Fitch Ratings, while telling investors last Friday to expect additional "widespread and significant downgrades" on $139 billion worth of subprime loans, has cited a new factor in their "worsening performance."

"The apparent willingness of borrowers to 'walk away' from mortgage debt," the analysts noted, "has contributed to extraordinary high levels of early default" on loans issued during the 18 months before the mortgage bubble burst. It expects losses to reach 21% of initial loan balances for subprime mortgages issued in 2006 and 26% for those issued in early 2007.

Such behavior, where not precipitated by willful fraud, shows that American homebuyers supposedly duped by their lenders aren't so dumb. They're perfectly capable of acting rationally without political interference.

While mortgage fraud has abounded in recent years, voluntary foreclosures are not by themselves evidence of a newfound irresponsibility on Americans' part. To be sure, until recently, mass-scale voluntary foreclosures were unthinkable. But markets have changed, and people are changing their behavior in response.

A decade ago, most people started off with enough equity in their homes to make foreclosure irrational from a financial standpoint. Consider: If you made a 20% down payment on a house, prices would have to fall by 20%, almost immediately, before you lost all your money and had much incentive to walk away. This scenario was unlikely, particularly since an independent appraiser had assigned a clear value to the home. Foreclosure was remote, absent a personal financial crisis, for another reason: Every month your mortgage payment would reduce your debt and increase your equity, giving you more room for prices to fall.



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http://online.wsj.com/article/SB120243369715152501.html?mod=opinion_main_commentaries

[Quakerfriend]

1. I've heard that in California they are considering a law that

would make it possible for /mtg Cos/banks to garnish people's wages who attempt to 'walk'.

They are looking for some way stop this NOW!

:shrug:

[juno jones]

2. I walked away from equity a year ago.

We got swindled and there was naught else to do. BTW, banks and your unscrupulous brokers, I fervently hope the few grand you cheated me out of and the paper 'mess-up' (wink,wink) that saddled us with an ARM was worth it in the long run.

IMO, Screw credit. Many of us try to do the right thing and this is what happens when we trust the system. We get robbed...and then blamed for the inevitable result. Much the same as rape victims.

Thank you Ursi for your timely postings on this subject. My advice to those in the same boat: escape while you can.

edit to add:I only had about $10.000 down on the house but had put nearly $20,000 worth of upkeep, repairs and remodel into it (doing our own labor, so close to $50,000 in real terms). The bank is getting a deal, as far as I'm concerned.

[2Design]

3. zero down - they have no skin in the game - the banks, allan greenspan, brokers, BFEE, appraisers

are all willing to pull the wool over your eyes with FINE print and other dealings - until I sold property I bought in the 80's I had no idea that they wrote up the papers different than agreed upon - I did not read all the fine print and TRUSTED they were doing a fair deal - NOT - they are crooks and liars and the new legalized mafia

[2Design]

4. wow - someone gave me a heart and this was the only place I was visting today - now I just need a

star - but it is nice and warm to get a heart from a stranger - thank you