02/03/10 Baltimore, Maryland – Here’s a mystery: Homeowner defaults. Not that there are so many…the mystery is why there are so few…
In Nevada, for example. Two out of three homeowners are underwater…which is hard to do in the desert. Some of them owe hundreds of thousands of dollars on something that doesn’t exist anymore – the equity on their houses. Still, most of them continue making mortgage payments. What gives?
It’s a case of “asymmetrical ethics,” says The New York Times. Lenders don’t hesitate a minute to maximize their earnings – using every tool available to them and every trick in the book (including some tricks that have never been published). They default whenever it suits them.
But homeowners? They plod along. Maybe they think their house will come back in price. Maybe they think they’ll suffer some awful penalty if they default. Maybe they are just too proud and too honest to take advantage of the non-recourse mortgage provisions. So, they keep paying.
But for how long? Mortgage rates are based upon past behavior. In the past, people regarded mortgage payments as an inescapable, moral obligation. You paid as long as you were able.
It won’t be long before the ethics of Wall Street catch on all across the country. Gaming the mortgage system will become as common as signing up for food stamps. When people see that house prices won’t go back up…and when they see their neighbors shedding hundreds of thousands of dollars’ worth of mortgage debt – and getting away with it – they won’t be far behind.
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Another explanation is people are no longer making mortgage payments and waiting to get evicted. The banks are taking a long time to formally file a foreclosure. The banks prefer to add what’s owed to them as principal that will be paid. That way they don’t show a loss. If they foreclose, it’s a way of admitting the mortgage will never get current.
gotta preempt harry here,
Feb. 3 (Bloomberg Multimedia) — The U.S. may lose 824,000 jobs when the government releases its annual revision to employment data on Feb. 5, showing the labor market was in worse shape during the recession than known at the time.
With so many people that can make their payments walking away and having their credit damaged for up to 7 years there will be that many less potential buyers in the near future. To remedy this you can be sure there will soon be the MFFA. The Mortgage Forclosure Forgiveness Act of 2010, wiping clean all foreclosures from credit histories from 2005 thru 2011.
As insane as this sounds I will bet it is the next step the government takes to save the unsaveable housing sector. With 25% percent of potential buyers credit ruined it will happen. More moral hazzard!
“gotta preempt harry here,”
Don’t worry, Harry doesn’t get here until he’s done drinking his soy latte and memorizing the Kudlow column. Only then does his limo take him back to the office.
Be very careful of defaulting on a mortgage. There is such a thing called a Deficiency Judgement, which basically give the lender the right to pursue you according to the state law. You have been warned.
Bill was exactly right – its a pride issue. Many people feel the moral obligation to pay their mortgage. But as things deteriorate, and their dollar has to be stretched even further, this moral obligation will fly out the window as they see their peers and neighbors walking away.
In the future I believe the graph of people walking away from their mortgages will look like an exponential graph.
4 million ARM mortgages (and other dastardly predatory mortgages sold to the naive public) will come due in 2010-2011….Banks will continue until desperate to keep past due mortgages on their books to show quarterly profits….but, when the rock hits the hard place for both banks and mortgage holders whether due to loss of job or banks needing to “clean their books” or no future lending…the SH*& will hit the fan….
There is NO ESCAPING this……
(I like the line about Harry and Kudlow!! Now there (KUDLOW) is a piece of work!!!!)
Today, 4th, the market is “chewing on its tail!”
I agree with Charlie. I went to a seminar for r/e agents last week put on by the former head loss mitigator for Indymac Bank who was selling a kit on the best way to get a short sale closed for a client. Several of his statistics blew me away. 12 Million foreclosures last year, only 5 million sold. 20 million coming this year. average time from first missed pmt. to foreclosure initiation- 18mo. Average loss mitigation (in short sales) accepted last year- 53 cents on the dollar for firsts and 5 cents on the seconds. Look out the front door to your left and look to your right. Chances are one of them is not making his payment.