Another Facet to the Foreclosure Explosion: Homedebtors DELIBERATELY Choosing Foreclosure - LAT

Can we stop calling people with big mortgages and no equity "homeowners" and start calling them "homedebtors" now? Okay? Okay.



http://latimesblogs.latimes.com/laland/2008/01/a-tipping-point.html


A tipping point? "Foreclose me ... I'll save money"
A homeowner who can't sell his house tells the L.A.Times, "Foreclose me. ... I'll live in the house for free for 12 months, and I'll save my money and I'll move on."

Banks and lenders fear this kind of thinking -- that walking away from a house could be the smart economic move -- appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: "... people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity, value in their properties..."

...

A commenter on L.A. Land this morning writes, "I am one of these people. My condo has dropped in value from $520K in 5/06 when I bought it to $350K now. My ARM payment will probably go up $900 per month in June.

...

"I have purchased a cheaper place in a nearby area now, while my credit is good, and will stop making payments on house #1 after house #2 closes. I know the foreclosure will be on my credit for 7 years, but I will have saved a lot of money.



Dang!

nt

Usury never pays.

Next are the credit card companies who will be really screwed when people stop paying credit card debt. It's already begun too.

The mortgage holders (let's not call them homeowners) have an option. A default option.
They can give up the house and go away.

The less equity you have in the property (and a lot of these guys are underwater) the more valuable this option is.
It is a zero sum game, a mortgage holder's gain is the loss of his/her lender.

Many people are abandoning their homes, because the payments are so high, and their home values
have dropped.

They can't re-finance, because the value of their home is less than the loan amount they took out.
They don't qualify for re-financing.

"60 Minutes" showed neighborhoods where every 3rd house was in foreclosure, and some were abandoned.

The economist, speaking about the sub-prime disaster, said that we aren't even "40 percent into this".

The piece was truly chilling.

It was chilling.

...but maybe I'm being cynical.

I see these upper- and middle-class families losing their homes and moving back
in with their parents or into apartments. After a financial tragedy like that,
people go into 'repair mode'. They're not out buying flat-panels and granite
counter tops. They're afraid, rebuilding and saving more.

Also, there are millions of people who won't lose their homes. However, their
home values have been significantly reduced. No equity. No more home-equity
loans, and these loans fueled the economy for a long time. People were
taking out these loans to pay for furniture, home improvements, cars and
vacations. People relied on that home-equity as part of their nest egg. Sitting in a home that is worth
20-30 percent less than the purchase price will also cause people to pull back
on spending. It fosters insecurity.

What happens to the economy when all of this spending just stops? Factor in
the reality that people have maxed out their credit cards--and you add further
economic slowdown. This economy has been propped up on money that people borrowed--and
those spigots are slowly being turned off.

The reverberations from this housing crisis (and the decrease in credit-card use) will be felt so
far and wide. I see nothing but a huge recession (and possibly a depression) on the horizon.

If consumers aren't spending--there are entire industries that will suffer--travel, retail,
restaurants, entertainment, recreation, etc, etc.

There is a general sense of panic at all economic levels. There was a story in the Sunday
NYTimes about rich New Yorkers downscaling--giving up their dog walkers, their expensive
manicures, designer coffees and other luxury purchases. The article was good for a laugh,
but it was also very telling. People are worried--even those in the top 5 percent, and they
are countering that worry by saving and decreasing spending.

I just don't see how we avoid a deep recession.

and people are waiting till they are very very ill before coming in. It is hitting all aspects of people's lives.

when the economy turns around and your house is worth more. I have done this through a few recessions. As a result, I have never failed to make money on my homes (this is my 4th) when I sold them.

Of course, there are lots of "ifs", including keeping your job and health care and not going into deep debt. I bought my current house because it was in a stable, attractive neighborhood where houses have always been solid investments. I have done remodeling as necessary to keep it marketable but not with granite counter tops or top of the line appliances. My last investment in the house was replacement windows. The old ones were originally in the house when it was built in early 1941, so it was time!

It had interesting balance. Turns out if you give people money for free, they'll take it, who would have thunk it?

with a conventional FRM and large down payment as did the vast majority of our neighbors. Four blocks down in the same development there are several homes for sale and at least three that are VACANT in a sold out new development.

Scary as hell. We didn't buy as an "investment"--this is literally our dream home--as we fully intend to stay here when we retire (25 some years away) but in the meantime we are watching prices fall ever so slowly in the immediate area.

they're not coming back. Sporatic, unstable, low-wage employment is not only possible but probable in America in some areas, even for those with degrees, training, and experience. I find it very scary that anyone still has the confidence to go forward with confidence in their ability to pay the 30-year, 15-year, any-term debt of any size. What-if thinking that led to a plan has been replaced with the when, and it will, shoe drop again, until no good "plan" is even possible.

Sticking it to the banks, just like the banks would stick it to them if they could.

Hilarious!

people walked away from houses in Houston all the time. My brother bought a house in one of Sugarland's upscale subdivisions for about half of what it was really worth. He sold it 10 years later and did real well.

This is nothing new. It's just rational economic decisions by folks overloaded with mortgage debt. It's a result of overzealous greed of the mortgage industry.

When you have to choose between an affordable roof and food over your good credit only the basics of survival will prevail.

Now that the bankruptcy laws have changed - how exactly do the foreclosures work? Can an individual walk away from a payment that is no longer affordable w/ the Chapter 11? In order to foreclose I am assuming one has to declare bankruptcy?

Special Depression legislation makes walking away from a house in foreclosure a possibility under specific (very specific) circumstances in California. I don't know about other states. Check with a lawyer who specializes in this before you try it.

and ADC cheats of yesteryear. Bastards, taking advantage of the those poor little multinational lending companies that have sold your home loan three or four times and milked every possible dime from it.

The LAT times needs to get a fucking grip and stop writing to appeal to its corporate masters. A handful of folks are willing to intentionally fuck their credit. Big whoop.

say it's these mortgage payers' own fault for defaulting the plan last month to bail out the mortgage industry had very little to do with a free handout to those defaulting and everything to do with mortgage companies trying to keep some kind of cash flow going rather than just a bunch of foreclosed properties that even they can't sell. The response is the inevitable, "Oh."

It says that this is happening, because it is.

Yes, the acceptability of default has gone up.

Is it less than honorable behavior? Yes.

But how honorably were the lending and real estate industries acting when they knowingly created the bubble? They're reaping what they sowed.

That's a different question.

"Can we stop calling people with big mortgages and no equity "homeowners" and start calling them "homedebtors" now? Okay? Okay."

and emphasized Deliberlately in the title of the post as individual snips were made to highlight a few individual's glee at escaping their debt. Perhaps the LA Times didn't want to make a value judgement but I see no signs that the OP didn't intend to inflame the idea that a handful of folks exploiting the system (at the peril of their own credit) was epidemic.

I just said that because I think it's absurd to call a person with a huge LOAN an "owner". It really had nothing to do with the choice to default.

Personally, I think a lot of people doing this are probably making a prudent decision. Too bad the lenders threw all discrestion out the window.

IMHO "honor" is more of an issue with unsecured loans.

In the context of a secured loan, the contract is straightforward, the lender accepts at the outset that it will possess the home/car/whatever in the event of non-payment. There is no extra "...and the borrower is a scumbag" provision there.

And the lenders must have all kinds of analysts and people with MBAs working for them to tell them where the market is headed...

Why would they lend people $400K for a house that they know was worth $200K 2 years before?

They do teach mortgage lenders about what happened in Florida in 1925, right?

The lenders and even the real estate agents are just as culpable in this mess as the buyers (many of whome really did buy into the belief that the prices would ALWAYS go up. They didn't want to be priced out forever.

just curious

I am careful to actually make sure I understand the tone of what someone wrote. If you would care to explain to me why you might presume that I would've voted for Reagan perhaps we can have somewhat more of an intelligent conversation rather than a simple flinging of pooh.

I was tempted to suggest you put in a ":sarcasm:" thingy the first time I read the post...

if they don't see the smilie, they can't recognize it for what it is.

Reading the comments on the blog story, I'm afraid their corporate masters were served well by that piece.

""I have purchased a cheaper place in a nearby area now, while my credit is good, and will stop making payments on house #1 after house #2 closes. I know the foreclosure will be on my credit for 7 years, but I will have saved a lot of money." It's called the 'Texas Two-Step."

will be seeing an influx of defaulters.

for 2 years their offerings have included a ton of 'house flipping' and 'what's my home worth' fair. One of their shows is about first-time home buyers and I don't think they've had a single episode where the buyers put down ANY money. Most were taking out a simultaneous first and second mortgage to cover huge amounts with NO money down!

Contrary to what the talkingheads are saying, most foreclosures are not occurring because of loans to POOR people. They're happening to folks with nothing invested in the home and huge mortgages.

I've owned it for 20 years. It's been on the market for 6 months (which is actually less than most of the houses in my development) and I've dropped the price twice.

I've literally done everything I can over the last couple of years to keep it. The last refinance I did put me over the top. But it's not just the mortgage itself, but the cost of living in this house. I've had real estate taxes double, utilities double, food prices going up, basically the whole nine yards. Maintenance needs to be done but there isn't the available funds to do it.

I've teetered on bankruptcy for the last couple of years. I made the huge mistake of looking at bankruptcy not as the business decision it should be but as a moral decision of not being able to pay my debts. In the long run, everything takes a big hit when you try to juggle paying your debts with only so much money.

We're moving into our rented townhome on Saturday. By doing this, I'm saving over $250 just in rent vs. the mortgage. Add in the utility savings and it'll be another couple of hundred dollars. Walking away from this house is (as sad as it is) the most sensible and sane thing I've done in a long time. I can now start to repair my credit rating, possibly get some money back in the bank, get back a life I used to have.

" I made the huge mistake of looking at bankruptcy not as the business decision it should be but as a moral decision of not being able to pay my debts."

I came to the same conclusiong when I defaulted 2 years ago. I realized that my income was going nowhere, and I was spending so much on rent and debt service that I could not even afford to buy my kids a pair of cheap shoes. I realized that even if I cut up all the cards and paid as much as I could afford, I would be paying them for another 40 years or so, but of course would have starved in the meantime. I finally overcame the "moral" qualms because of those pair of shoes. I could not in good conscience continue to deprive my kids of decent food, clothes, etc. because we had been forced to borrow due to some major financial setbacks. They did nothing to deserve that. So I walked away - and my credit will be shot for a long time to come. That's the price of freedom, I guess.

It's been a long time since the corporations stopped treating consumers like customers, or even human beings for that matter. We are merely sources of cash waiting to be pumped dry. They kept giving me( a guy who honestly reported my income as $25K per year), card after card after card until I had about $20K total in CC debt. They knew my income, and they knew that I would never afford to pay them back and loaned me just enough so I would be trapped paying the minimum for life. There needs to be some SERIOUS lending reform in this country - not taking away the oprion of bankruptcy, but car companies should not be allowed to loan a person almost a year's income unsecured, and they shouldn't be allowed to charge 30% if you miss one payment! I do feel sorry, but it doesn't keep me awake at night.

the reality really sank in when I couldn't even qualify for Chapter 13 due to negative cash flow. This despite the fact that between my wife and I we make a half decent living.

I honestly just sort of had a sardonic laugh last night watching that segment on 60 Minutes, when that couple said that they were thinking about walking away, because those who pushed this were so obviously greedy that they now are reaping what they sowed, IMO.

Obviously, I wish nobody was in this situation to begin with, and it's no more honorable to walk away from your obligations as an individual, than it is for the Portland diocese of the Roman Catholic Church or United Airlines. But the parties who really moved this fiasco were the very ones who are now holding tons of property that they can't move except at a loss. "Well, what did you expect?"

there is way more to the story than this

Then what do the banks do? The police can only handle so many oustings.

and why "equity" loans were unheard of.. People actually had a financial interest in their homes..

Many house-buyers these days have NO money of their own invested in those houses, so, many who are willing to "have their credit ruined", are also willing to just "walk away"..

The sad truth is that as more and more do it, their "credit score" will not be all that much of a scar on their futures....and there is always someone out there who will be willing to loan them money..

I have a friend who declared bankruptcy, and as soon as she did, she was INUNDATED with offers of NEW credit cards... even credit cards from the same people on whom she defaulted..

When people used the houses as ATMS, always cashing out what equity the "market" added to those houses, they NEVER had any personal money on the line.... They just got to live in a spiffy new house for a few years, for LESS than an apartment would cost..and when the time came for the loan to become "real", they then could stay on until the official foreclosure kicked in...for FREE..and just walk away. If enough people in a neighborhood did this, they set in motion a chain reaction of troubles for the people left behind, as their own property devalued by the day...

I live in a development that was built in 1979, and the house next door was recently foreclosed on, and the people evicted.. It is now undergoing an attack of vandals..Every night , I expect to be awakened by fire trucks..
I have called the police numerous times, but they will not DO anything, except note that I called. they will not enter the place and photograph the gang grafitti that's now all over the inside. Both doors have been kicked in, and no longer lock.. I called the realtor whose name is on the sign, and he told me he has 5 in our neighborhood, just like that one, but the OWNER(bank) must be the one to board it up, and they don;t seem to be in any hurry.. I think they WANT it burned down..It would be better financially for them..

My son and his friend are actually kind of interested in buying it and fixing it up as a rental.. The house just like it across the street sold in October, for $385K..apparently the bank is asking $165 for the house, but with about $40K in damage, he thinks they could actually buy it for about $120.. That's what "walk-aways" do to a neighborhood..

In my new neighborhood, most of us have traditional mortgages and paid large down payments--real money we earned off of previously owned homes. There's dozens a couple of blocks away who got wacky ARM mortgages (all those homes were built in the last year). Only 158 homes in out subd and there are at least a dozen for sale and likely "walk-aways" due very soon.

No investors here--the builder did a good job keeping them away. But once those ARM families get hit, I fear for our area.

Gee, all those borrowers are making a business decision based on the cold, hard numbers, and we're getting stuck holding the bag. We can't shame them anymore, nobody has conscience pangs about how much trouble they're causing to lenders and brokers, and they're acting solely in their own economic interest! Don't they know that's our side of the street? How dare they all of a sudden make a decision with only their own bottom line as consideration?

You can hear Mortimer Duke now: "Turn those machines on! Turn those machines on!"

is taxable?:shrug:

IF a house is valued at the bank for 240,000 and the bank only gets 215,000 isn't the borrower on the hook for the difference?

....the question is whether you want to be on the hook for 240K or 25K. That 25K can be negotiated.

People are into survival, not hopeful intentions. I can't believe US business has become so stupid. George and Dick have rubbed off (ew) onto everything or so it appears.

I expect they are going to blow this whole mess through the pipes with a burst of inflation. Let's hope the pipes hold together, and don't stand near any toilets or drains.

The worst thing about it is that the poor and the least powerful will suffer the most damage, as usual.