Posted on 03/19/2010 9:29:04 PM PDT by grand wazoo
More homeowners are opting for 'strategic defaults' Underwater on their mortgages and angry at banks, more borrowers are choosing to hand over the keys, even if they can afford the payments. Walkaway
Wynn Bloch bought her Palm Desert house for $385,000 in 2006. Now she says it will never be worth anywhere near the amount of her mortgage, so she stopped paying on her loan and moved out. (Bret Hartman / For The Times / March 4, 2010)
Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her Palm Desert home, even though she could afford the payments.
Bloch paid $385,000 for the two-bedroom in 2006, when prices were still surging. Comparable homes are now selling in the low-$200,000s. At 66, the retired psychologist doubted she'd see her investment rebound in her lifetime. Plus, she said she was duped into an expensive loan.
The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.
"There was not a chance that house was ever going to be worth anywhere near what my mortgage was," said Bloch, who is now renting a few miles away after defaulting on the $310,000 loan. "I haven't cheated or stolen."
(Excerpt) Read more at latimes.com ...
She talks as if she was forced at gun point to buy this house. What a joke. I have 0 sympathy for her.
Even the Wall Street Journal said if you owe more than 25% what your home is worth, you will save money by walking away from it. That’s the math.
That’s why the minimum down payment that is realistic is around 20 per cent. All the machinations by government to relax lending standards didn’t
help either, of course.
That’s a total lack of integrity on the part of the buyer. It’s a contract, whether they like it or not.
When government rewards this kind of behavior in corporations, they encourage citizens to wonder why they shouldn’t do the same. Might not be right, but it is fair.
Why wouldn't they just walk away and leave the bank holding the loan?
If the housing market is in terrible shape, they could just spend the money, declare bankruptcy, and walk away.
I disagree. Both the buyer AND the lender take a risk on the investment. Under the terms of any mortgage you are entitled to walk away if you are willing to surrender the property to the lender. It IS part of any mortgage contract and in the laws of every state that I am aware of. She has lost the house, taken a hit to her credit, and probably had to explain to everyone she knows her situation. She went through it because it made financial sense, end of story.
Great idea to put down a down payment. But that didnt save everyone...
Some values have dropped 50%. Even people who put 20% or 30% down are sitting underwater today.
I read not too long ago that about 1 out of 5 mortgages total are underwater. And in some locations hardest hit by the bust it explodes to nearly 1/3rd of mortgages are underwater.
This is a serious problem because if all those people default, its going to collapse our banking system and it will bring ALL of us down.
I totally agree with you.
Ethics aside, what happens to your credit?
Banks and businesses do the same thing all the time. The contract said that if the buyer quits paying, the bank gets the house. So those people that strategically default on a first mortgage are, in fact, meeting the terms of the contract: they quit paying and give the bank the house.
Moreover, borrowers in non-recourse states (like CA) paid a premium (some research indicates by up to 80 basis points) for this option.
Less than what happens if you stop paying the mortgage and force the bank to initiate foreclosure. And much less than if you pay the mortgage and then default on your non-secured revolving credit (eg, credit cards).
Since the 2005 “bankruptcy reform” law went into effect, mortgage debt has become (much to the surprise of the idiots who run banks) a much lower priority to pay than your credit cards and student loans. Consumers who stay current on their credit cards and ruthlessly default on a mortgage are often doing the fiscally prudent thing for their family.
Yep. That’s what it basically is. The bank is looking to give you a loan because they make money off the interest. That’s the business they are in. They want to make money just like the buyer does. So a mortgage is more of a mutual investment deal.
30 year loans are risky though. A lot can happen in 30 years. The person can die. The person could lose their job and suffer a massive loss in income. The property could be destroyed by a flood, hurricane, earthquake, tornado, fire, etc, etc.. The property could lose value. So the bank has to assume a lot more risk than the buyer because, especially in the beginning, the bank is the one putting the money down.
Isn’t that what this person is doing? Stop paying mortgage and force the bank to initiate foreclosure.
Your rationalization notwithstanding - you are a scumbag thief.
The banking system did collapse.
She bought in 2006? She bought right before the market adjusted. I’m just surprised she could find a two bedroom for ~385K
That she could find a two bedroom in Palm Desert for ~385K, that is.
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