There was speculation in yesterday’s comments that there must be plenty of people who are “underwater”.  The group included those who may not be over-encumbered (have some equity), but aren’t willing to sell until more of their down payment/equity comes back. 

One commenter said, “I think the low inventory is due to the fact the most anyone that bought in the last 10 years is underwater, or near underwater, and can’t afford to sell to move-up or relocate for better job opportunities.”

The common perception is that being underwater is the #1 reason for defaults.

But apparently those underwater today must be comfortable enough to stick it out.  Why?  Because it has never been so easy to walk away, without obligation:

A.  You don’t have to income-qualify for a Fannie/Freddie/HARP refi, and no appraisal is needed either.  They are now supposed to approve you promptly, and if you don’t make it, they’ll approve your short sale within 30 days.  The major banks have similar commitments in place, and include up to $30,000 bonus to cooperate with short-selling.  They are paying you to walk away!!

B.  The five-year exemption to taxing your debt relief is supposed to expire at the end of this year, but apparently those underwater aren’t too concerned about Congress extending it.

Or those who are underwater aren’t planning on using it?

Closed short-sales have increased 22% Y-O-Y for the first five months of 2012, indicating that the banks are getting more proficient. But new short-sale listings are declining in San Diego County:

Type Jan Feb Mar Apr May
Closed SS, 2011
Closed SS, 2012
New SS Listings

C.  Have banks given up on pursuing those who don’t make their payments?

I only know of my own experience with Wells Fargo – they start calling both the work and home phones the first day of the 15-day grace period!  They have a surly attitude, too, like I stole money from their grandma.  They don’t seem to be in a giving mood!

Are other banks more forgiving?  Maybe, but we have to be far enough along through the foreclosure “crisis” that bank personnel are better equipped to handle the workload.

I think that the most-distressed homeowners have worked themselves through the system by now – it’s been five years.  The group that is hanging on – however large it is – are folks that should be able to find a way to keep hanging in there as long as prices stay at least flat.

What topic next – rising rates, Europe, or worsening economy?

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