No Help in Sight, More Homeowners Walk Away

New York Times ^ | February 2, 2010 | David Streitfeld

[Lorianne]

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.

... their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”

Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.

[Fee]

Banks are not letting people with jobs and assets walk away from their home mortgages. In CA banks will sue and pull money out of homeowner’s bank accounts and garnish their paychecks for the mortgage losses after the home is foreclosed and sold.
Banks are not letting people with money off that easily. The only people they leave alone are the ones who are unemployed and truly broke.

[SolitaryMan]

I’m an appraiser and have seen many foreclosed and vacant homes. But the most troubling is seeing aliens, legal and illegal, packing up and leaving their homes and going back to the homeland when the economy turned bad.

[FlingWingFlyer]

Sounds like Barry and the ‘RATS have given us a homeless “recovery” too.

[2banana]

It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.

Using government money to do that would be seen as unfair by many taxpayers, Mr. Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy.

The NYT - always looking at the socialist answer to every problem...

[Uncle Miltie]

Oh No! Not the dread Pricing Mechanism! Can’t have that....need bailout.

[hinckley buzzard]

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,”

How abot you prosecute a couple of the lying cheating motherf*ers for criminal fraud and throw them in prison? After about 48 hours you wouldn't have "a large scale" problem.

[SpaceBar]

Does this theory work for entire nations too? What happens when say the GDP goes below 75% of the accumulated debt, and who exactly “walks away”?

US debt ~$12.4 trillion.
US GDB ~$14.2 trillion.

GDP/debt * 100 = 87.3%.

[Oldexpat]

At the hight of the realestate boom, when rents were far below the cost of purchasing, we decided to sell out rental property in CA. The people we sold to, by and large, got 100% loans and were paying more in interest, principle, taxes and condo fees than they would have paid in rent. There was no reason for them to buy, except that they expected to make money on property appreciation. The rents have stayed somewhat the same, but property values are now down a lot and they are complaining they made a bad mistake.

[METARZAN]

Ah for years we’ve been taught that “A Home is an investment”. It’s just like investing in “anything” you cut the losses at some point and get rid of it.

I’ve got 2 acres in “Suburbia” and a nice house, I’ll be the first to let anyone know that home ownership is way over-rated, always has been.

[C19fan]

An executive with Wachovia, one of the country’s biggest and most aggressive lenders, said during a conference call in January 2008 that the bank was bewildered by customers who had “the capacity to pay, but have basically just decided not to.”

No wonder Wachovia failed with this IDIOT in a leadership position. I have been in the induistry for over 10 years and the first thing one learns, if you do any research, is people will default if they are underwater. This is from basic economic theory. Now we have a situation where the benefits of walking away outweighs the costs in terms of damaged credit and perhaps psychological factors.

[MrEdd]

There is always a potential problem when you run a scam and dont skim the mark up front.

No pity for the mortgage holders.

[MrEdd]

There is always a potential problem when you run a scam and dont skim the mark up front.

No pity for the mortgage holders.

[C19fan]

It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.

Answers the qestion why Zero lifted the caps of taxpayer support for Fannie and Freddie. Get ready for the mother of all bailouts.

[MrEdd]

Yeah, but Barry won't jail the bankers and appraisers who knew the prices were fraudulent.

[Svartalfiar]

Exactly. Walking away may look like a good financial decision, but most mortgage lenders would, I think, be smart enough to engage you in something called a contract. Those who just walk away should rightly have their credit killed for doing so. That's what credit basically measures, is how financially trustworthy one is. If you walked away from a $50,000 contract, I certainly wouldn't want to lend you any money for your next purchase.

[Proud_USA_Republican]

I just was playing poker at a casino and lost 75%. Where’s my bailout Barry????

[j-damn]

*But the most troubling is seeing aliens, legal and illegal, packing up and leaving their homes and going back to the homeland when the economy turned bad.*

Why is that ‘troubling’—I thought we didn’t want them here?

[fightinJAG]

Look, Obambi could fix this problem tomorrow by having the tax code changed so that every homeowner who is current on his mortgage at the end of the year gets to, say, quadruple his mortgage interest deduction (with a carryover).

This would amount to an across-the-board tax cut that is proportional to what you owe on your house and which rewards only those who keep paying their mortgage.

It also would take no time to implement, it would not have an application and approval process, there would be no middleman. Some of that porkulus money that’s laying around could “fund” the tax cuts.

Millions of Americans would suddenly see their net housing cost go down. This would have actual and emotional meaning for the real economy.

[FromLori]

Banks going after them

http://market-ticker.denninger.net/archives/1916-Banksters-Fight-Back-Deficiency-Judgments.html

BUT Banks are losing some in court

http://market-ticker.denninger.net/archives/1926-What-Took-You-So-Long-Put-Backs-and-Blow-Ups.html