From msnbc.com:

When David Martin and his wife bought their north Seattle condo five years ago, they figured they had plenty of time to downsize if they needed to before they retired.

Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call “strategic default.”

“Guilt and morality are one side, and objective financial analysis are on the other side,” Martin said. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.”

For now, Martin is electing to stay in his home and continue paying the mortgage.

“We intend to continue as we are on the basis that we gain nothing from acting at this point,” he said in a note. ”We think that the real estate market in Seattle will rise by 2013 enough to offer better alternatives. There is a small chance that the federal government will act to offer more rational choices. The real possibility is that the debt might be refinanced in 2013 at a level that might offer enough reduction in payments to allow us to hang on long enough to shore up our financial position.”

another excerpt:

“We’re finding that people are much more willing to walk away when the other party is unknown or what you might call a ‘bad bank,’” said Seiler. “Those are the ones that received a lot of bailout funds or were active in the subprime market, giving loans to people who couldn’t afford them and they knew that.”

The mortgage lending industry’s widespread reluctance to modify loan terms has also changed homeowner attitudes about walking away, according to Ruyle.

“They feel much better about doing it if they’ve tried to contact the lender and the lender won’t budge,” he said. “They feel justified about it because they’ve tried to do their best to work it out.”

http://bottomline.msnbc.msn.com/_news/2012/01/09/9614305-as-home-prices-fall-more-borrowers-walk-away#.TwsF5d52o2c.email

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JtR:  At the end of the article they are running a poll, with 18,335 responses so far to this question: 

Would you consider a ‘strategic default’ if your home was worth less than your mortgage?

60.7% of the respondents said Yes.

From cnnmoney.com (seen at CR):

NEW YORK (CNNMoney) — Delinquent borrowers facing foreclosure are learning that they can stay in their homes for years, as long as they’re willing to put up a fight.

Among the tactics: Challenging the bank’s actions, waiting to file paperwork right up until the deadline, requesting the lender dig up original paperwork or, in some extreme cases, declaring bankruptcy.

Nationwide, the average time it takes to process a foreclosure — from the first missed payment to the final foreclosure auction — has climbed to 674 days from 253 days just four years ago, according to LPS Applied Analytics.

It takes much longer than that in Florida, where the process averages 1,027 days, nearly 3 years. In D.C., foreclosure averages 1,053 days and delinquent borrowers in New York often stay in their homes for an average of 906 days.

Because California is a trustee-sale state, the delays are shorter – only 11 months on average:

And while some borrowers are looking for ways to make good with lenders and get their homes back, many aren’t paying a dime. Nearly 40% of homeowners in default have not made a payment in at least two years, according to LPS.

Many of these homeowners are staying in their homes based on a technicality. There is rarely any dispute over whether or not they have stopped paying their mortgage, said David Dunn, a partner at law firm Hogan Lovells in New York, who represents banks and other financial institutions in foreclosure cases.

“In my experience, they never say, ‘I’m not delinquent’ or ‘I want to pay my bill but I’m confused over who to send it to,’ or ‘Oh my God, you mean I didn’t pay my mortgage?’ They’re not in technical default. They’re in default because they’re not paying,” he said.

Read the rest of this entry »

David Blitzer and his crooked bow tie make the usual psycho-babble comments on CNBC:

http://www.cnbc.com/id/45475582

“Consumer attitudes have gotten a lot more negative about long-term commitments, and the No. 1 long-term commitment most people in this country made is buying a house,” David Blitzer, chairman of the S&P Index Committee, told CNBC.

Prices in August were also revised to show a decline of 0.3 percent after originally being reported as unchanged.  The index has leveled off in recent months and analysts are hoping the market is at least stabilizing.

“Over the last year home prices in most cities drifted lower,” Blitzer said in a statement.

“The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy.”

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This was probably the more pertinent comment from the same article:

The number of U.S. homeowners who are underwater on their mortgages decreased modestly in the third quarter, though levels remained high, data analysis company CoreLogic said Tuesday.

The number of properties with so-called negative equity — in which the amount owed on the mortgage exceeds the property’s value — was 10.7 million, or 22.1 percent of all residential properties with a mortgage.

That is a slight decrease from 10.9 million, or 22.5 percent, in the second quarter, CoreLogic said.

“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness,” Mark Fleming, chief economist at CoreLogic, said in a statement.

As the housing market struggles to recover, the large number of underwater homeowners has prompted concerns of more foreclosures to come if borrowers become unable to keep up with their payments or decide to walk away.

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Lately, San Diego’s ride has been smooth, not bumpy, with September’s SA off -0.5%:

The last few years close-up:

From cnbc.com: http://www.cnbc.com/id/39873678/

A new survey by Pew Research says 36 percent of Americans believe walking away from their mortgage is perfectly acceptable. We want to know if you would ever simply leave your mortgage and your home behind.

Tell us what you think. Share your opinion:

Total Votes: 2267

From our friend Nick at the WSJ:

At what point do borrowers who owe more than their homes are worth decide to stop paying the mortgage?

A new study from economists at the Federal Reserve Board aims to answer that question. The research found that the median borrower who “strategically” defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%. 

(the new study uses -62%, JtR math shows $800,000 x -62% = $496,000)

The study is bad news for the mortgage industry in that it backs up the idea that a growing share of borrowers are walking away from loans. Concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford.

But the silver lining here is that it suggests a rather high threshold for borrowers to walk away.

“The fact that many borrowers continue paying a substantial premium over market rents to keep their homes challenges traditional models of hyper-informed borrowers” choosing to simply walk away, the authors write. The results suggest “that borrowers face high default and transaction costs” that make strategic defaults less widespread than they might otherwise be.

Read the rest of this entry »

From the latimes.com – click here for full article:

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.”

Time was when Americans would do almost anything to hang on to their homes. But that commitment appears to be fraying as more people fall behind on their loans while watching the banks and lenders that helped trigger the financial crisis return to prosperity.

Nearly one-quarter of U.S. mortgages, or about 11 million loans, are “underwater,” i.e. the houses are worth less than the balance of their loans. While home values are regaining ground — median prices rose 10% in Southern California last month to $275,000 compared with a year earlier — they remain far below the July 2007 peak of $505,000.

Many homeowners are just coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California, according to economist Chris Thornberg.

Stuck with properties whose negative equity won’t recover for years, and feeling betrayed by financial institutions that bankrolled the frenzy, some homeowners are concluding it’s smarter to walk away than to stick it out.

“There is a growing sense of anger, a growing recognition that there is a double standard if it’s OK for financial institutions to look after themselves but not OK for homeowners,” said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject.

Just how many are walking away isn’t clear. But some researchers are convinced that the numbers are growing. So-called strategic defaults accounted for about 35% of defaults by U.S. homeowners in December 2009, up from 23% in March of 2009, according to Luigi Zingales, a professor at the University of Chicago’s Booth School of Business.

He and colleagues at Northwestern University’s Kellogg School of Management reached that conclusion by surveying homeowners about their attitudes and experiences with loan defaults.

They found that borrowers were more willing to walk away if someone they knew had done it, and that the greater a homeowner’s negative equity the more likely he or she was to default, even if the monthly payment was affordable.

An analysis released last year by credit bureau Experian and consulting firm Oliver Wyman estimated that nearly 1 in 5 homeowners who were seriously delinquent on their mortgages in the last three months of 2008 were walkaways.

“The fact that people are strategically defaulting — there is no question,” Zingales said. “The risk that the number of people doing this might explode is significant.”

A flood of walkaways could damage the nation’s fledgling housing recovery by swamping the market with foreclosed properties. Still, some experts are dubious that millions of underwater homeowners will pull the plug as Bloch did. Homeownership remains the cornerstone of the American dream. Moving is a hassle. And the stigma associated with a foreclosure is likely to keep many hanging on for a recovery.

The biggest surprise is that so many underwater homeowners continue to pay, said White, the Arizona law professor. He’s convinced that personal shame, as well as moral suasion by the government and financial institutions, has kept many homeowners from walking away, even when they’d be better off financially by dumping their homes.

Hat tip to Chris for sending this along:

LINK TO ACTUAL CRAIGSLIST AD

I could see this in Palmdale, or maybe Victorville…….but could it happen here?

An update on Flint, MI:

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/20/AR2009062000956.html

An excerpt:

Then he looks at what’s left of the neighborhood – blocks lined with bruised homes and broken windows. Two streets over, someone has nailed a plywood sign to a tree: “No Prostitution Zone.” On three blocks of Jane, the city is targeting 14 homes for demolition, four of which have already been scarred by fires.

“My dad, he can’t come down this street anymore. … It’s too hard to see,” Kildee says. “Because his whole life was here.”

What was once Buick City is largely a cement prairie now, and General Motors, which once employed more than 80,000 in the city of its founding, has cut its Flint work force to about 6,000. Flint’s population, which peaked at 197,000, dwindled to 115,000 in 2007, and falling.

To stabilize the city, Kildee started the Genesee County Land Bank, which has taken title to 9,000 properties since 2002, tearing down 1,000 and selling or rehabbing others.

The foreclosure crisis has made the job even tougher, leaving the Land Bank with at least 1,000 more abandoned homes to demolish.

All types of homeowners are thinking about walking away – in this case, the builders of the seven new homes on Newland Ct. in Carlsbad formed an LLC so they’ll probably dodge the ruining-of-credit problem. 

Too bad they didn’t sharpen their pencil a little sooner on their prices.  When they started selling these in the summer of 2006, they were looking for $1.4 to $1.5 million, and when the first set of listings expired at the end of 2007, they were down to $1.2 million.  But buyer expectations were either dropping faster, or close to non-existent for 3,500 sf homes that back to Carlsbad Village Drive.

The current listings on the Newland Seven are on the range $895,000 to $995,000, but too little, too late.

The lender, United Commercial Bank, is foreclosing on their $6.4 million loan, and had their trustee sale scheduled for today – but it postponed to next month.  The profit was too tight – so their business decision became obvious – they decided to walk too.

The walkaway option will occur to many, and there’s not much to stop people.  I think the LLC will be obligated to pay tax on the loss endured by the lender – wasn’t the tax relief offered only to those who owner-occupied?

Should the government reverse the decision on not taxing the money lost by the banks by owner-occupiers?  That decision really opened the floodgates, and it’s probably too late to turn back now.