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.”
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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.
The lenders drive the bus. If they are now unhappy with the default remedies they themselves stipulated in the contracts, tough titty. Suck it up and/or change the terms on new business.
“Would you consider a ‘strategic default’ if your home was worth less than your mortgage?”
Anyone who says ‘no’ to that question is lying. However, ‘consider’ is one thing… ‘execution’ is a whole ‘nother level.
Elder Friendly = +20% permium. Gosh, we discussed this in 2007?
Agreed Game Agent, the article was jacked up for sensationalism – the old guy said he wasn’t walking, yet you sure got that feeling by reading the headline and first few paragraphs. The poll question was vague too. I’m sure 100% of the underwaters have at least considered defaulting.
Rob Dawg – I hope you can join us tomorrow for Blog Talk Radio with CR!
Shocking… a bunch of scumbags. How about I get all my money back from stock market investments that went down because I’m not happy with the results. People should be ashamed! Nowhere in your contract does it say that the value of your house is guaranteed to go up…
Mortgage – a conveyance of interest in a property as security for repayment of money borrowed.
Conveyance – The transfer of property from one person to another
You can’t get much different from a stock purchase if you tried. The property is the collateral for the mortgage loan. Walking away and giving the property back to the lender is shameful how?? Who is getting cheated when the terms of the contract are being fulfilled? The interest rate changed on the mortgage is a “risk premium”. Go look that up before more whining about “shame”.
oops, changed should be charged
Not mentioned in the article is how much (if any) the Martins put down on the condo.
Hate these kind of articles; this is my take away (aka decode)-
Take out the mortgage at 63. Plan to retire in 10 years. Figuring you’ll downsize before you retire (and, I sense there was/were/are profitting expectations). At half time equity is a negative 60K. Guess that plan’s not working so good.
I must have missed something along the way, because even under generally good economic conditions, this example (and, plenty of other documented real estate purchasing decisions gone wrong, as covered in the press) seem irrational, and make no sense to me. I’m left wondering – is there no historical perspective left in the collective conscious?
“Walking away and giving the property back to the lender is shameful how?? Who is getting cheated when the terms of the contract are being fulfilled? The interest rate changed on the mortgage is a “risk premium”. Go look that up before more whining about “shame”.”
I guess next time I take a car loan I should just give the car back to the bank after I drive it off the lot cause it’s no longer worth as much… Apparently my parents taught me more about fiscal responsibility than 60.7% of the readers polled. I think it is absolutely shameful and is gets to what is fundamentally wrong with America right now.
all the weak hands will walk. “u know who is swimming naked when the tide goes out.”
let the losers walk. winners will pick up the scraps.
It matters not if he put down 50% or 0% and got a $50k check at escrow. The lender set the terms. All of them. Including default remedies. If they are now unhappy with the results of the terms they offered and to whom, then they should adjust accordingly. Offering free cheese and then complaining about the mice is just silly.
As many as 5 million California property-tax payers who have been taking the entire amount they pay off their state income taxes could see a major cut in their deductions when they file next year.
Beginning with the 2012 tax bill (the one due in April 2013), the state Franchise Tax Board will require property owners to break down their property taxes into deductible and non-deductible portions.
That means property owners who have been deducting their Mello-Roos fees — often running into thousands of dollars — will no longer be able to deduct those or any other special assessments like vector control or mosquito abatement.
http://economy.ocregister.com/2012/01/09/state-targets-property-tax-payers/101799/
Not just MR, Jim. How many people have been deducting interest on 2nds, 3rds & HELOCs that were not legally eligible?
The government is looking for new ways to get their pound of flesh from the population. Get ready for more of the same.
go ahead. but you’ll be out the car, any downpayment and any payments you made. Of course a car isnt’ the same as a house. We expect cars to be worth less as time goes on, not so with a house. But I have a feeling facts don’t matter much to you.
I bought my house in the late ’80’s right before there was a housing bust, in addition to that, I faced a 50% (temporary-apprx 1 year) reduction in my income. I can honestly say that I NEVER once thought about walking away. My only fear was that I wasn’t going to be able to hold everything together and get through it.
I held it together and made it through by the skin of my teeth but it was a long long long time before I willingly ate cheap staples again. Potatoes and rice? Ugh, no thanks.
If the government wants to stop these strategic defaults then they should stop “forgiving” the income gift these deadbeats are being given by their lenders.
For a very brief time, California wasn’t in agreement with the Feds tax forgiveness and a guy who works for one of my family members was incensed that he got a $15k tax bill from the Ca. FTB. He had suffered no loss of income but decided he didn’t want to pay more than the house was worth. We howled over his stupidity.
Why are these forclosees such special little snowflakes? What about the people who ran out of rope in 2006-2007 before the tax forgiveness law went into effect?
I’m glad I hung on because eventually my house payment became less than the rent of a one bedroom apartment and in less than five years it’ll be paid off and all I’ll have to worry about is taxes and insurance.
Before anyone screams about Prop. 13, if my home value drops any lower I’ll be appealing my assesment with my local tax collector’s office.
Holy cow, I can’t believe after four years of this mess there are still idiots who fundamentally do NOT understand the terms of the mortgage.
The mortgage says pay the debt OR return the house. One of the two. So, the “homeowner” has TWO options – pay the debt or turn over the house.
The lender had all the lawyers in the room, and the lender is the one who came up with those two options.
Can we please stop the incessant whining about those “homeowners” who opt to return the house AS PER THE CONTRACT?
And to clarify, as long as we’re whining about perceived violations of rules, my major beef is banks holding on to devalued properties without recognizing their current market value, as well as perpetually redefining what a late loan is, and also not marking down a delinquent loan.
In my simple little world, banks would be forced to liquidate their bad loans & real estate holdings ASAP.
My preference is for a short hard crash, rather than the long drag out slog we’ve been in for the past four years.
Why wouldn’t someone strategically default?* Banks and lenders make morally questionable business decisions that are financially sound all the time. I’m not at all swayed by the moral hazard “pious baloney”.
*The real things to keep you from strategically defaulting is the collateral damage: credit ratings, loss of banking services, etc. Those are harder to quantify, but they do add costs to the transaction and should be properly studied before making the leap.
“I guess next time I take a car loan I should just give the car back to the bank after I drive it off the lot cause it’s no longer worth as much…”
Something I’ve heard a while back, possibly here.
If you have to decide between making your house payment and making your car payment, choose the car payment.
You can live in your car.
You can’t drive your house.