Venice Area Homes Blog

 

Strategic Default - Walking Away from a Mortgage

Currently, in the United States, there are about 7 million homeowners behind on their mortgages.

Banks are working with homeowners who are behind due to lost jobs. What if you haven’t lost a job but your home value has dropped, in some places by as much as 50%? Don’t make a judgment, really think about it. What if you had paid, say $200,000 just 2 years ago and your home is now valued at under $100,000. Would you want to continue making those payments? Suppose you could rent a much larger, nicer home for less than the cost of your monthly mortgage payment. For many in the country, that is a reality.

In a 60 Minutes clip from Sunday night’s feature, Chris and Dana’s house was purchased for $262,000 and is now worth $142,000, if they could even sell it. More than one third of the houses on their block are vacant due to foreclosure. Their bank refused to negotiate with them because they can afford their current payments. Their dilemma; should they continue to “throw money away” on what is, at this time, a bad investment. What would you do? Would you walk away?

Estimates show that, in the past year, at least 1 million people who could afford their payments simply walked away.

The stigma of foreclosure is melting rapidly. It’s just too common. Credit ratings suffer, but for how long? That remains to be seen. Many borrowers believe their credit will be fine in as little as 3 years. Will that be the case?

What we’re seeing in our business is lenders turning down potential home buyers who have a previous foreclosure. Lenders believe that, if they did it once, they are far more likely to do it again. Foreclosure victims are seen as a very high lending risk by the banks.

Lenders have received billions from the government specifically to work with troubled homeowners. Commissioner of the FHA (Federal Housing Authority), David Stevens, agrees with banks that those who can pay should not be assisted. But, maybe the people who can afford to pay are exactly the ones to work with, people who can afford to both keep the house and maintain it.Why work with homeowners who have lost jobs and will probably end up losing it or neglecting it because they don’t have the finances to maintain it?

Citibank estimates that 1 in 5 who walk away are able to pay and, don’t forget, walking away is not illegal. Banks have made provisions in the loan documents that, if you cannot afford to pay, assigning your property to the lender is a payment option.

We need to stop the slide. Banks should work with anyone willing to work with the banks! Keep people in their homes. Keep homes out of foreclosure. Our economic stability remains at huge risk because of the housing market.

In Arizona, 50% of houses are underwater. In Nevada, 65% are. More than 11 million nationwide are upside down and estimates say that number could easily double in the next year. In 2011, at least half of all homeowners may owe more than their homes are worth.

The banks are being paid to help people stay in their homes. Walking away is becoming easier. How do we resolve the dilemma?

Karen Rittenhouse | www.karensperspective.com | 336-834-0614 | karen@karensperspective.com