Survey Shows Homeowners Will Walk from Mortgages
February 26th, 2009 by Allison JordanMore than 1 out of 3 homeowners say that if housing prices continue to slide they’ll walk away from their mortgages, according to a new Housing Predictor survey. The poll clearly demonstrates major changes in the way Americans feel about the U.S. banking system and their own financial well being.
Americans have historically felt responsible to fulfill financial commitments made to banks and mortgage lenders. But the foreclosure epidemic has grown to become the nation’s worst financial disaster since the Great Depression damaging the entire economy and sending millions to the unemployment lines.
Respondents to the survey are demonstrating they are fed-up with the way the economic downturn is affecting their lives. Some 36% of those surveyed said they would walk away from their homes if housing prices fall for a number of years.
March 5th, 2009 at 12:08 pm
What a load of garbage. This type of rubbish is the reason consumer confidence is at an all time low.
March 5th, 2009 at 12:21 pm
This will only make the problem much, much worse. But I’m sure it will happen. Nobody thinks in terms of their community, and people walking will only make prices slide more and beget more people walking. It’s disgusting, really. People used to buy a home because they wanted a home, not something they could cash out on a few years later.
March 5th, 2009 at 12:32 pm
Many first time homebuyers over the last 2-4 years hit the heat of the subprime debacle, only to discover (rather quickly) that they are trapped by high interest (6.8%-9.7% splits) in interest with an 80/20 loans or similarly toxic terms for arms or other nasty mortgage products.
You can blame them for being stupid, but let’s be pragmatic, not everyone is a mechanic, not everyone is an electrician, nor a surgeon, nor a CPA. So let’s for a moment take some of the blame off “stupid people who knowingly got over their heads” and go with this line of reasoning.
I’m sure many of those 1/3 have ran into countless brick walls unable to refinance because of a second lien(the 20) and that there simply is no sort of refinancing-options to offset a property that in the course of a few months has lost over 10-25%+ of it’s value
Chiefly because the homeowner assistance acts only make provisions for people who went over their head (32%-55% of gross pay mortgage payments), not people who kept their mortgages reasonable (ie: around 15-30% of their gross pay.) and the banks who are getting paid these high rates need that money to avoid panhandling to uncle-sam and are simply unwilling to change the terms.
It all pans out how the individual homeowner look at their home;
Is it: cheaper to pay for and maintain and holding it’s value comparable to an apartment in the individual case (an asset)
Or is it: a money-sucking headache (a liability)
And for 1/3 people, I’ld not be surprised (especially after reading that 12% of payers are behind or in some various default stage) if another 21% of reasonable people have even bigger headaches and more obvious liabilities.
March 5th, 2009 at 1:02 pm
It’s the Nanny State. They made a mistake and now blame everyone but themselves. These are the ones who most need a lesson from the School of Hard Knocks. Instead, they’ll get a mortgage mod at the expense of taxpayers–”keep people in their homes” neglects to mention that these people put no money down and lied about their incomes to get mortgages they couldn’t afford. They were sure the market would continue to go up at least 20%/yr, justifiying any amount of lying. The buck has to stop somewhere…I wonder how they are able to look in the mirror?
March 5th, 2009 at 1:21 pm
I put 20% down on my home. Knowing full well that it is my home for life. That 20% is now < 7%. It was NOT an investment. This is the fundamental problem with this crisis. But I’m still committed to the home. But that won’t prevent me from trying to use the threat of doing a walk-away, from trying to renegotiate with the mortgage holder for some SHARED concessions; that helps is both.
March 5th, 2009 at 2:28 pm
Our value is down about one-quarter of the price we paid. Our equity is a little higher than today’s market price, because we sold our prior home at a high price as well, and put the proceeds towards this home. So, if I look at it from that perspective, it is not so painful. We are still ahead if I look at the entire last 7 years or so, and even more so if I include in the big picture our first home, which we also had a tremendous amount of appreciation on.
Since 1996, investment-wise as well as personally, home ownership has absolutely benefited us fiscally and improved our net worth dramatically.
I’m not selling anything! This is my real-true experience. My husband and I both paid for college with our homes, and have still gotten enough out upon sale to “trade up.”
So, I still believe in real estate, and I think the marketplace right now is a once-in-a-lifetime chance for buying at low prices and low interest rates.
This downturn is ugly, and any recovery will be awhile in coming. But, we all know in our heart of hearts that some people will take advantage of these times and 10-15 years from now they will be way ahead in net worth. While other people will feel frozen in the tracks, unable to decide, and 10-15 years from now, my personal opinion, they will have regrets.
People who walk away that don’t have to are as greedy as the wall street pundits and ponzis who got us all into this mess.
Cheating does pay off for some, but mark my words, there is so much anger out there about all this, it is like post-9/11 — the criminal investigations are only just beginning. I would not want to be on the wrong side of an increasingly regulated system.
March 5th, 2009 at 2:38 pm
My mortgage/house- 10 years old,We put 20% down-we pay 5.75 on mortgages, on my saving account bank pay only 2-3%. Now we want move out state-but no way how we can sell house,don’t have money /cash?/ for second home and don’t have future-can someone say i’m not responsobal person if i have to walk-away?But bank and goverment have to share my lost and found way how not panishment me more in this cause.
March 5th, 2009 at 3:01 pm
I put 20% down on my single family home in mid-2006, after selling my condo for a nice profit. I recognized that I was definitely buying near the top and was willing to accept the fact that the value may decline at some point in the future. Today my house is worth 65% of what I purchased it for in 2006.
The problem isn’t that I bought a house that I couldn’t afford, nor that I don’t want to be accountable for the debt that I owe to my mortgage holder. The problem is that the lenders are the people that acted completely irresponsibly by providing loans to people who had no business qualifying for any type of loan, let alone one for a six or seven figure amount. This was the main driver that led to the huge run up in prices and the systemic problem that we’ve all been left with today.
I am in the process of getting my loan modified, including an interest rate reduction and principal reduction. I don’t feel like I’m taking advantage of anything unfairly– had the lenders not acted irresponsibly I would have been able to afford to buy my family a home at 35% less than I had to pay in 2006. I would have still had the income and down payment required to qualify and service that debt. As it stands today, my income has been cut by 40% due to the recession and my home is worth 15% less than what I owe on it, both which can be directly attributed to the lending practices allowed over the past five years.
Do you honestly believe that I’m unfairly benefiting from a loan modification being provided by the irresponsible lenders that created this mess? The lenders should definitely share in the pain for the mistakes they’ve created– the idea that all homeowners receiving loan modifications have acted irresponsibly and are not living up to their obligations is a load of crap! The same people with those views are probably the government and union workers who never seem to have to take any type of salary cut to keep their job. Those two systems are the biggest on-going “tax payer bail-outs” that we continue to support in this country.
March 5th, 2009 at 4:41 pm
I do not feel it to right to walk out on an obligation you have made with someone. I took a loan out on my house because I bought another house in another State and had planned to move there after selling house I put the loan on. Then all the house values started to go down and no was buying. I had to sell the house in the other state to get my loan back down and then was planning to refinance to a lower rate. That is when I was laid off and now the banks will not refinance because I have no job and the house values are lower than the original loan amount. Even through all that I still believe in trying to pay my mortgage as long as I can because I made a deal and plan to stick by it. This is the reason they have contracts because no ones sticks by their word any longer.I guess those don’t matter any longer either.
March 5th, 2009 at 5:38 pm
OK- i work in the business. I used to work at the company whose slogan was “The Power of Yes,” (Formerly known as WAMU,) they were the US largest S&L & largest portflio lender, servicing their own loans. During a customer service training one of the main points they got across was “ASSUME THE BORROWER KNOWS NOTHING,” pertaining to mortgage transactions. Sounds funny. It’s actually true, if your not in the business or affiliated with lending, all you know is buy a house, get a “mortgage,” hopefully at a descent rate, with low payment.
Throw some lingo their way, and throw 600 legal size documents in front of them and start explaining that okay “SIGN HERE, THIS IS THE RESPA DISCLOSURE, THESE 25 DOCUMENTS ARE THE TILA DISCLOSURES, HERE IS A GOOD FAITH ESTIMATE, THIS IS YOUR ARM BOOKLET, HERE IS YOUR NEGATIVE AMORTIZATION DISCLOSURE…ETC. WTF who in their right mind is going to know what they are siging.
The bottom line, and primary reason we the people fell into this mess, is because the BANKERS, those clever groups of wall street bankers who create a product that will enable those who cant document their income, or afford to own a home…own a home.
stated income stated assets! Who ever thought of that program was evil, obviously you dont qualify if your applying for a SISA, or a No income no assets, or fast and easy. ANY person who did qualify would prefer to document their income, and get a better rate…
WHY ON EARTH DID THE OFFICE OF THRIFT AND SUPERVISON allow the banks to abandon risk management. if your not verifying an applicants ability to pay for the mortgage; then obviously you dont care if they can pay or not….WHAT THEY DID CARE ABOUT WAS THE 1 BASIS POINT OF THE 30,000,000 MILLION IN PRODUCTION FOR THAT MONTH.
GREED & STUPIDITY. THATS A WICKED COMBO
MORAL OF THIS STORY- ITS NOONE ELSES FAULT BUT THE BANKERS (ALL LEVELS, FROM SALES TO EXECUTIVE,) BANKS ARE SUPPOSED TO LEND ON QUALITY TRANSACTIONS FOR BORROWERS WHO ARE CREDIT WORTHY AND HAVE ABILITY TO REPAY FINANCIAL OBLIGATIONS.
MY OPINION= IF YOU WERE SOLD A BAD LOAN, CALL YOUR LENDER, GIVE THEM THE FOLLOWING OPTION:
aPPROVE A SHORT SALE OR HAVE THEM GIVE THEIR ADDRESS AND FED EX THEM THE KEYS BACK.
March 5th, 2009 at 9:55 pm
Amen Chad and Valencia!
Where do I mail in the keys? Because at the rate we are going, I stand to be stuck in my 1000 sq foot condo that I bought as a FTH in 2006. I initially bought this as a starter home and took out a 7/1 mortgage. I wasnt looking for a killing. Just enough equity to trade up. I am not greedy, I bought modestly. Right now I am down 45%. When it hits 50-60%. I am walking. Real Estate isn’t an investment? Do you own any financial that is worth half of what you paid? Are you holding? HELL NO. The banks (and now govt.) screwed us “players by the rules.” Now I am going to buy a bigger and better place for my growing family and stick them with the bill for their greed and utter stupidity.
March 6th, 2009 at 6:03 am
It just bother’s me where some holier than thou’s blame the people who bailed out of their mortgage. The majority of the one’s that did probably had no other alternative or, couldn’t stomach the way they were being ripped off by high interest rates. While, there is no doubt that some were planning only to stay a few years in a rising market – that may have been their only hope of eventually building enough equity. These people who claim to have so much responsibility and, who claim to know what hard knocks are – should maybe spend 15-20 years providing for a family living from paycheck to paycheck. All the while, suffering the consequences of living in an affluent society that barely tolerates the unfortunate victims of circumstance or, less skilled and accepted. The bankers and mortgage holders could join the “whole community” a little too. They don’t need to gouge the unfortunate so lavishly. We all contribute to the taxes that bailed out the financial institutions. Sure, a lower income person might not pay as high of a percentage rate of tax. However, when looking at the majority of spendable income, the amount of tax (not itemized expenses)and base living costs leave them in dire need. The legislature should regulate their response time to those who want to refinance a failing mortgage. There should also, be a limit to credit score criteria. I think that should be in the public sector’s control in order to protect those who are unable to protect themselves.
March 6th, 2009 at 6:07 am
I am still able to make my mortgage payments. For how long, I don’t know. If the government is willing to throw billions of dollars to the car industries and banks then they should offer some help to the working class people. All working class people!! Not just the people that are in forclosure. I went through a divorce, so that is two incomes down to one, I am struggling but I am not looking for handouts. I would like to refinance for the lower rate and lower mortgage payment but I cannot get a bank to loan me money. This Modification plan is what I need to keep my house. I will not walk away from my mortgage unless there is no help for the people that are making their payments on time and trying.
March 6th, 2009 at 8:02 am
QUIT BLAMING THE BANKS & QUIT WHINING! I agree the Banks are definitely at fault for luring folks with their mortgage plans, but I also believe folks who took out these crazy, non-affordable in the future loans are responsible as well. Next time, do your homework before making a huge purchase. Us taxpayers and the ones who are going to stay in our homes shouldn’t pick up the bill for consumer stupidity.
March 6th, 2009 at 8:18 am
Homeownership is not a necessity of life and is not suited for everyone. That is why many people choose to pay rent. To properly own a home you should have some some sense of your financial obligations, have the time, energy, skills and or funds to properly maintain it, and also be able to afford the taxes, insurance and HOA fees. Yes, the banks are at fault for pushing people into these loans, but ultimately we are all responsible for our actions. This mess we’re in really says something about the current state of intelligence and moral obligations of so many in our society.
March 6th, 2009 at 10:10 pm
Newly wed and fresh out of college we barely scraped together our downpayment on a 2 bedroom 1 bath house. 7 months in my wife was pregnant by mistake. Now 2 years later we are both making good money and want a 2nd child but we can’t sell our house and don’t have room for a 2nd child. Now, our house is worth probably a little less than we owe or right at breakeven. We can’t even list it with a realtor because we don’t have enough equity to pay realtor fees. So what do you think is more important to me, having our 2nd child or postponing a planned pregnancy until we sell our house at some point down the road that could be years? Screw this market, the economy!
March 7th, 2009 at 6:49 am
It amazes me of all the whining I hear but no one taking responsibility for their own actions. People who got those crazy loans just wanted what they wanted and didn’t care how they got it just that they did. It’s easier to blame the banks, but it’s not only their fault.
I’m sorry when I bought any home or got any loan I read everything and made sure I understood everything before I signed. We all have the right to refuse any loan or buy any home with a bad loan from the get go. All I can sat is people use your brain!
March 7th, 2009 at 10:25 am
It’s a messed up situation for everyone. Everyone is blaming everyone else. But its really no one’s fault except for the faceless system.
No one here can really expect someone to continue paying a massive mortgage bill on a house that is now worthless. Remember they got the massive mortgage with the promise that they could sell the house in a few years and make a killing… just like everyone else was doing. Its like paying a car not on a car that was stolen… and you didn’t have insurance!
People who bought into the system long ago definitely have reason to cry foul too. They are the ones in the middle or near to top of the ponzi scheme that are realizing that the people at the bottom (the new comers) aren’t paying. They are saying “Hey! That’s not how its supposed to work! You’re supposed to pay so I can get my $$$…just like I paid so the people before me got theirs!”
In the end, no one is going to win.
In the end, everyone is going to get shafted.
We can play the blame game all day but the truth is it would have all worked out if the house of cards kept growing. Home buyers today (or 5 years ago) weren’t any more risky than they were 10-15 years ago. If ARMs or interest only loans were readily available back in the day, most of you finger pointers where looking for your first homes then you may have very well taken that route. And there is nothing wrong with that… as long as the house of cards kept growing. But lets not point fingers… as none of you started a picket line outside of your bank when they started pushing interest only loans. No one cared how they money came… as long as the potential home buyer came with a check for the house you had for sale you didn’t care if it was MOB money.
I personally dont know how to fix this mess without hitting the huge reset button. Everyone is going to take a bath on this one. You may not be able to sell or buy a home for a long time. If your career takes you to another state you may have to find a new career or let the house go.
I guess the moral of the story is there is no magic formula for prosperity.
There are no sure bets… real estate…. stock markets… all were touted as the guaranteed road to prosperity and retirement at 45. The system duped us all. Now what do we do? Roll over and die … or figure out how to make our own prosperity for us and our family? Its not in a financial book or those talking heads on TV. Its in you. Find your own way.
Good luck and God Bless you and your families.
March 7th, 2009 at 11:35 am
My question is: Where do you go after you walk out on your mortgage? Buy another house? Not likely… Rent? Not from me after I conduct a credit report and public records search. What is the wisdom of abandoning your home and contributing to the downward spiral of value? Before you start ignoring that monthly loan obligation, give a thought to your alternatives.
March 19th, 2009 at 9:22 pm
Wow, this article sparked a flame didn’t it? Great comments!
I have nothing of substance to add at this time though.
April 4th, 2010 at 4:21 pm
Inexpensive Mortgages may last!
The Federal Reserve’s completion this week of its program to buy $1.25 trillion in mortgage bonds probably won’t mean significantly higher U.S. home loan rates as investors return to the market, replacing the Fed.
Fixed mortgage rates likely will rise less than a quarter of a percentage point in the next three months, the smallest increase for the second quarter since a drop in 2005, according to estimates by Fannie Mae and Freddie Mac. The gain would add about $30 to the monthly payment for a $250,000 mortgage.
What we are seeing is an effective handoff occurring between the Fed and industry buyers such as banks and pension funds.
“I thought the Fed’s exit would leave a bigger void.”
Advantus is purchasing mortgage bonds after the Fed’s program drained supply in the $5.4 trillion market. A recovering U.S. economy means institutions have more capital to invest, and stricter lending standards have made the securities more attractive to money managers like Sebald by limiting the number of loans. About $1.5 trillion of agency mortgage-backed securities will be issued this year, down 12 percent from 2009, according to a March 25 Morgan Stanley report.
“The constraints on borrowers are much higher now, and that’s reducing supply quite a bit,”
The Fed began buying bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae in January 2009 with the aim of bolstering the housing market by reducing financing costs. The plan helped drive the average rate for a 30-year fixed mortgage to an all-time low of 4.71 percent in December. The central bank began tapering off its purchases in January to prepare for its exit from the market tomorrow.
Improved Conditions
“The Federal Reserve’s purchases have had the effect of leaving the banking system highly liquid,” Fed Chairman Ben Bernanke told Congress on March 25. “A range of evidence suggests that these purchases and the associated creation of bank reserves have helped improve conditions in mortgage markets and other private credit markets and put downward pressure on longer-term private borrowing rates and spreads.”
In December 2008, two weeks before the start of the Fed bond-buying program, the spread between the 10-year government bond yield and the average U.S. 30-year fixed mortgage rate was 3.07 percentage points, the widest since 1986, as investors demanded higher payment to compensate for risk. Last week, the difference was 1.14 percentage points, narrower than the 20-year average of 1.65 percentage points.
Worst ‘Behind Us’
Private buyers are going back into the market to pick up where the Fed is leaving off.
Credit spreads have narrowed significantly, and not just for mortgages, because investors believe the worst of the financial crisis is behind us.
The world’s largest economy probably will grow 3 percent in 2010, according to the median estimate of 53 economists in a Bloomberg poll. Gross domestic product expanded at a 5.6 percent annual pace in the fourth quarter, the most in more than six years, after a 2.2 percent increase in the prior period.
Inflation remains below the Fed’s long-term forecast even with record budget deficits. The central bank’s preferred price measure, which is linked to consumer spending and excludes food and energy costs, rose 1.3 percent in February from a year earlier. Policy makers project the gauge will climb to 1.7 percent to 2 percent over the long run. Fed officials cited “subdued inflation trends and stable inflation expectations” in their March 16 decision to keep interest rates near zero.
Below Average
The U.S. 30-year fixed mortgage rate probably will average 5.13 percent in the second quarter, up from 5.02 percent in the current period, Washington-based Fannie Mae said March 10. Freddie Mac expects a 5.2 percent average, rising from 5 percent this quarter, the McLean, Virginia-based company said in a March 12 report. The average rate in the past decade was 6.2 percent.
A “significant run-up” in mortgage rates may jeopardize a recovery in the housing market, Federal Reserve Bank of San Francisco President Janet Yellen said in a March 23 speech in Los Angeles. That would add another hazard to a market already facing a challenge with next month’s expiration of a federal tax credit of up to $8,000 for homebuyers.
Fed’s ‘Gamble’
“There is an element of a gamble in the Fed ending its mortgage securities buying — they are removing a key support at a point where the recovery housing recovery is still looking quite rickety”.
Fed policy makers have made it clear in statements following the end of rate-setting meetings that they will restart the mortgage-bond buying program if needed. That “backstop” has reassured investors and encouraged them to re-enter the market.
Much of the demand for mortgage bonds is coming from money managers seeking to diversify their portfolios.
“Investors are full up with Treasuries. They haven’t been able to diversify into mortgage bonds because the Fed has been buying the bulk of them. Give them an opportunity to diversify into that market, and they will.”
Carmen Arruda, Fidelity National Title