Look, the overwhelming majority (and I mean something like 95% or more) of these situations where somebody walks away from a property, they are not the home the person lives in. They are ‘second homes’ which are actually investment properties turn investment disasters and ‘income properties’ turn income vaccuums.
BofA took loans with zero down and when the market goes down 20% the home is now 20% upside down. And if you are a homeowner in other financial trouble and you are now paying a mortgage on a home which will take more than a decade to be worth what you are paying on it, the idea doesn’t exactly lack sense.
The ‘cure’ to this (if the geniuses in Congress choose to ‘solve’ this problem) will basically destroy real estate even further than the whole banking screw-up which has turned a recession into a depression in many markets.
This would have been one of the normal downturns or corrections that we’ve seen in the last fifty years which would have been a little deeper because of the level of prior activity but also recovered faster because of the friendly tax treatment of capital gains. But the banking scandals with the over-collateralizing of mortgages on Wall Street by those scheming bastards are causing a total collapse in a number of markets and preventing otherwise healthy markets from either recovering or gaining ground.
And the Feds had no more idea that the banks were building a house of cards around every mortgage they took out than the Feds knew that Arthur Anderson was creating a house of debt-ridden scams in some of the countries largest corporations. But in both cases, it was Wall Street would profitted from it and failed to look behind the curtain as they promise their investors they do when they promote and recommend various companies stock.
Both political parties were complicit in this fraud, but for different reasons. The party of business, the GOP wanted to create an ‘ownership’ society and thus help their buddies on Wall ST. The Dems wanted to open up housing for the ‘disadvantaged’, namely minorities and those with poor credit and no money for a dwon payment. Both parties had a vested interest in this Ponzi scheme because both parties’ constituents benefitted from Greenspan;s east credit. NO down, No doc, interest only loans were designed to scam the taxpayer by giving out loans to people who could neveither afford the house they were buying, or who would never have qualified for a loan in normal past underwriting standards.
The rebate bill which raises loan limit for Fannier and Freddie is just pouring more fuel on the fire, and the taxpayer will be left holding the bad for the huge defaults just down the road. The $ is being crushed precisely because the world is on to our scam, after all they bought a lot of the CDO’s and now they are next to worthless.