Financial Times: US housing market hit by ‘walkaways’

[marmar]

US housing market hit by ‘walkaways’
By Aline van Duyn

Published: February 22 2010 22:13 | Last updated: February 22 2010 22:13

Wayne B, a 62-year-old executive who works at an airport, and his wife Orapin, a dental assistant, are about to do something odd. The couple, with a pristine credit history, have decided to default on their $500,000 (£325,000, €370,000) mortgage on a townhouse in Livermore, a respectable city in California’s San Francisco Bay area.

It is not that they are unable to afford the $4,600 monthly mortgage outgoings: they have never missed a payment. But the house they bought for $582,000 in May 2006 – at the peak of the US housing boom – is now not likely to be worth more than $315,000.

“The process towards a default has started,” says Wayne, whose lender does not yet know it will soon be left nursing losses on yet another foreclosed house – and one whose owner, among the top-rated in terms of creditworthiness, is an implausible-sounding default risk. “We plan to retire in four years and will not be able to afford the mortgage payments then,” he explains. “The loss if we sell will be so large that, after doing a lot of research, we have made a business decision to walk away.”

The high level of foreclosures in the US – the handing over of homes to banks that lent people money to buy them – has been a huge burden on the economy, has kept house prices on a downward spiral and has resulted in misery and anxiety for millions of people. In some areas so many homes have been abandoned that the entire community has fallen apart as schools close, public services are cut and homes are ransacked for fittings or taken over by criminals. That has also sent property values plunging for those people still in their homes and paying mortgages.

Stemming foreclosures is a key policy objective of President Barack Obama’s administration. Various programmes are being worked on to modify people’s mortgages in an attempt to reduce payments so that the mortgages are not defaulted on, but so far with only limited success. ..........(more)

The complete piece is at: http://www.ft.com/cms/s/0/a93abcea-1fe7-11df-8deb-00144feab49a.html?nclick_check=1

[Vincardog]

1. People are finally acting like businesses.

[mmonk]

2. +1

[The Magistrate]

3. Exactly, Sir, And They Should

[closeupready]

5. Yep.

n/t

[Tierra_y_Libertad]

6. Good to see you back.

:hi:

[fasttense]

4. I always think of a business as a nice little Mom and Pop bookstore or restaurant.

So, that word businesses means to me a nice little place to visit and spend money.

So, I'm thinking you really mean people are finally acting like corporations and banks. Now those are some loaded words.

[davsand]

7. I hope they get some place to live arranged before their credit goes bad.

There are a lot of landlords who will not rent to anyone with "bad" housing credit history. Once they have a lease in place it would probably be a lot easier for them to get out from under that property.

You are going to see more and more of this kind of thing as this goes along. People are going to start to realize just how far in debt they are on real estate that has no more value than providing shelter.



Laura

[girl gone mad]

8. Sounds like they made a reasonable financial decision...

and it's probably their best option.

[CanonRay]

9. Wait till they get the IRS bill

for 200K in "forgiveness of debt" a couple of years from now.

[WeDidIt]

10. Which they can turn around and write off

because they lost 200K on the equity of the home in question.

The IRS only charges on forgiven unsecured debt. This debt was secured, so there was a business loss of 200K and a debt forgiveness of 200K.

It's a wash, no tax bill.