Some who can afford mortgages prefer to walk

[peejay 327]

Some who can afford mortgages prefer to walk

These fed-up homeowners say they left because bailed-out banks duped them

By ALANA SEMUELS

Los Angeles Times

March 27, 2010, 12:54AM

LOS ANGELES — 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, Calif., 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.

‘Underwater'

Nearly one-quarter of U.S. mortgages, or about 11 million home loans, are “underwater,” with buyers' houses worth less than their loans. While home values are regaining ground, they remain far below their 2007 peak.

Many homeowners are just now 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 — 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 percent of defaults by U.S. homeowners in December 2009, up from 23 percent 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 experience 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 they were to default, even if they had could make the monthly payment.

‘Strategically defaulting'

Similarly, an analysis released last year by credit bureau Experian and consulting firm Oliver Wyman estimated that walkaways accounted for nearly one in five homeowners who were seriously delinquent on their mortgages in the last three months of 2008.

“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 like Bloch did. Home ownership 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, according to 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 to dump their homes.

But real estate veterans said old taboos are eroding fast. Jon Maddux, a former real estate investor who founded You Walk Away, a for-profit company that guides homeowners through the process of default in 2007, said his earliest customers struggled with emotional ties to their homes as well as remorse about reneging on an obligation. That's changed as more homeowners have concluded that the housing market isn't going to rebound quickly and they'd be better off cutting their losses.

Maddux and other experts said average Americans are fed up with hearing how they're supposed to honor their debts while businesses operate by another set of rules.

There are consequences to walking away. A default will knock down a credit score by at least 100 points, said Craig Watts, a spokesman for FICO, the company that developed credit scores. That could make it tough to borrow money, rent an apartment or get a job since many employers now routinely check credit histories of potential hires.

To some, it's a small price to pay to gain a measure of revenge against the financial institutions whose loose money helped to fuel the crisis. Joseph Shull, a marketing professor, said he's planning on walking away from the town house he bought in Moorpark, Calif., in 2006.

A lot of angry people

“I'm angry, and there are a lot of people like me who are angry,” he said.

He purchased the home for $410,000 and spent $30,000 renovating. Now the house is worth around $225,000.

Shull, 68, admits he overpaid for his property. But he said it fell in value in part because of “regulatory mismanagement.”

“The bank stabbed me, but at least I got in a pinprick back,” he said. “This is the new economy. The old rules don't apply anymore.”

http://www.chron.com/disp/story.mpl/business/6932511.html

[Fandango 1,439]

Bullsh!t blamestorming. The banks didn't hold a gun to anyone's head and force him/her to buy a home. Now it's just convenient to walk away, which is perpetrating the problems on other people.

[Leafgal 3]

I agree, people have to know what they are signing and stop buying houses they in fact in many cases can't afford and they know it.

[peejay 327]

Bullsh!t blamestorming. The banks didn't hold a gun to anyone's head and force him/her to buy a home. Now it's just convenient to walk away, which is perpetrating the problems on other people.

It may be blamestorming, but even if you take the blame aspect out of it I can see the logic of conveniently walking away from a situation that is not in your own best interest. Homes were turned into investments rather than residences by the marketplace. Just like the stockmarket there are winners and losers. Dump the loser stocks, take your losses, and move on. Too bad home ownership was degraded to this level, but that is how it turned out. Live and learn.

I'm just thankful I bought my house and paid it off years before this madness went down.

[Fandango 1,439]

It may be blamestorming, but even if you take the blame aspect out of it I can see the logic of conveniently walking away from a situation that is not in your own best interest. Homes were turned into investments rather than residences by the marketplace. Just like the stockmarket there are winners and losers. Dump the loser stocks, take your losses, and move on. Too bad home ownership was degraded to this level, but that is how it turned out. Live and learn.

I'm just thankful I bought my house and paid it off years before this madness went down.

I think I have a unique perspective because I work in the housing industry...and I base my opinion on what I've seen every day for the past 5 years. We can sit here all day and debate over whether the chicken or the egg came first, but at the end of the day, in the middle of the boom...there were people who were just hell bent on buying houses. I used to joke around that I missed a mass email that went to everyone which said 'BUY A HOUSE! TODAY!!!'

While yes, the banks did give loans out to people who had no business getting loans...and yes, some culpability lies with them...they are not in the biz of loaning money to people for 'their best interests'. They are there to make money. Those subprime people paid more for their mtgs, as they should have. And had they continued to make those payments, we would not be in the mess we are in today.

But at the same time, I can't help but place blame on those individual homeowners who bought houses at ridiculous prices and terms. Is it the banks' fault that mr x agreed to a 10 year interest only loan with a 5 year balloon payment? No, that person signed for it and accepted that responsibility. Is it the banks' fault that some 10-year homeowner took out every drop of equity to pay off her credit cards and to go on a vacation and buy a new car? No, that was her responsibility.

Problem is, loans are bundled and sold, and have been for ages. The problem broke down when people defaulted on their loans, and just walked away without a care in the world. Whatever happened to the days of standing by your word? Yes, there are instances where they simply cannot pay, and yeah, it's some vicious circle because of the economy-housing market, etc. But I can't sit by when 'the big bad banking industry' is the one always to blame. You mention the stock mkt and losses...well, in the stock mkt, the individual takes the hit, and moves on. Bad decision, lost money, but eh...you want the benefit, with that comes the risk.

I am certainly no economist, nor do I hold a masters in real estate, but speaking personally, I too wanted to buy a home back then. But even I - a noob realtor who had been out of the country for 5 years - saw that the current mkt couldn't sustain itself. Do you know how many times I asked my customers 'are you sure you want to do this? do you know what it is you're agreeing to?' Yes, that makes me a strange realtor who is actually asking her customers to rethink buying a house...but I feel it made me a good person to follow my conscience to be able to be that last voice of reason for someone whom I saw was making a bad choice.

I sit in front of homeowners every day who are upside down in their mortgages. And they all want 'their money'...well, hrmm...you pulled out ever cent to buy a big entertainment system, there's a brand new escalade in the driveway, and yet you still are moaning about how things are so unfair to you. The more people who jump on this 'walk away' bandwagon are prolonging the situation for the rest of us. I am NOT in any way saying that every single time that the homeowner is to blame...real problems do arise....but walking away when you can afford to meet your responsibilities as you agreed to, is wrong.

The gov't has now changed the good faith estimate, and the HUD closing sheet. You should see it now...it's like 'mortgages for dummies' with all new restrictions and guidelines designed to 'protect' the borrower. But the way I see it, it's mollycoddling grown people who should really know better. We are not a nanny state, but are quickly turning into it. And I think that's wrong.

You can't just take your ball and go home just because it's not working out the way you planned. If you have the means to satisfy your responsibilities, there should be no option but to do so.

Edited March 28, 2010 by Happy Bunny

[justashooter 430]

“I haven't cheated or stolen.”

typical obama voter. make a stupid decision, and it's somebody elses' fault.

[lostinblue 1,989]

the retired psychologist. (the banks duped me)... Blame everyone else but me for my gamble on realestate.

What degree would she hold ? maybe DR. WOW

[Rebecca Jo 1,962]

the retired psychologist. (the banks duped me)... Blame everyone else but me for my gamble on realestate.

What degree would she hold ? maybe DR. WOW

Psychologists do not necessarily hold a doctorate.

[ScottThuy 140]

Some _Many who can afford mortgages prefer to walk

A lot of angry people

"I'm angry, and there are a lot of people like me who are angry," he said.

He purchased the home for $410,000 and spent $30,000 renovating. Now the house is worth around $225,000.

Shull, 68, admits he overpaid for his property. But he said it fell in value in part because of "regulatory mismanagement."

"The bank stabbed me, but at least I got in a pinprick back," he said. "This is the new economy. The old rules don't apply anymore."

http://www.chron.com...ss/6932511.html

The bank stabbed me? Wow... he made a bad investment and now doesnt want to live with his decision... I see people walking away from loans every day in my area... Most base the decision on economics..

They can continue to pay 2k per month for a mortgage on a house thats worth unde 100k or they could walk away and rent a house for well under 1k per month and save an extra 12 k per year... they are taking ethics and reputation out of the equation and making the decision based on $...

The problem IMO is that these people are pointing a finger at the banks saying they were unethical and at the same time they are making unethical decisions to walk away... Pot, meet Kettle... Kettle, meet Pot...

[wayno 9]

When are people going to return to taking responsability for their own actions. If you bought a house you couldn't afford and lied on the loan application about your income it is your fault. Actually maybe I should thank all those people because maybe i can afford a place now.

My dad was right when he kept telling me in order to buy a house I needed to save for a substatual down payment. 20% minimum was the norm in the early 90's and earlier. I didn't believe him at the the time and wondered how some of my friends, making similar to me, where buying houses with little down. Of course taking two mortages because they didin't have the 20%. Also paying interest only and arm loans. I almost pulled the trigger as well but upon ACTUALLY READING THE TERMS OF THE LOAN, I backed out. There was no way I could make it work and still continue my living habits. Besides what if PROPERTY VALUES TUMBLE. Looks like I made a smart dicision, (for once). Think a lot of people just sighned and didn't read anything. In no way is it the banks fault. They offered "no document loans" for people like me who were self employed (got 1099's athe end of the year instead of a W2 showing all our income. I turn in my taxes and all my deductions are subtracted from my income showing I don't make much compared to one who recieves W2 and no deductables get subtracted. Yet we might bring in the same amount.

Of course those seem to be the same people who are going to make it more difficult for people like me to get a loan now because of the way income shows come tax time.

[Rebecca Jo 1,962]

Seriously - just how many people would actually do such a thing?

I think outrage would be better spent on something else.