Despite stabilizing home prices in many areas, foreclosure numbers are still reaching record numbers. According to First American CoreLogic, a company that provides real estate information data, 23 percent of American homeowners have negative equity in their homes, classifying almost 10.7 million households as “underwater borrowers.” The 5.3 million of these households which owe at least 20% more than the home’s value are more likely to default on their mortgage loans and end up in foreclosure status.
In fact, the mortgage dilemma some homeowners are now experiencing has led to an interesting debate about whether underwater borrowers should simply cut their losses and walk away from their homes (and their mortgage payments). Brent White, an associate professor at the University of Arizona, thinks it is a mystery that more homeowners aren’t abandoning their homes. In a discussion paper White wrote, “Homeowners should be walking away in droves.” Trends show that homeowners under 30 (who are likely unattached to their homes and lack strong community ties) are more likely than other age groups to feel it’s okay to simply walk away.
The bottom line, however, is that a resulting surge in foreclosures will affect progress in the real estate arena if left unchecked. As a result, the U.S. administration is boosting its foreclosure-prevention efforts. On Monday a plan is expected to be announced that will crack down on mortgage companies who aren’t fully committed to assisting borrowers at risk of losing their house. Currently, companies that lower payments for troubled borrowers received financial incentives. The new plan will likely withhold these incentives unless mortgage modifications are made permanent.
What do you think? Is it okay for borrowers to simply walk away from their mortgage?
Are you at risk of losing your home? Email Rashida Bandy, REALTOR® at rbandy@lnf.com to receive foreclosure-prevention information for your state.
Sources:
The Associated Press, Martin Crutsinger (11/30/2009)
The Los Angeles Times, Alejandro Lazo (11/29/2009)
The Wall Street Journal, Dawn Wotapka (11/18/2009), Ruth Simon and James R. Hagerty (11/24/2009)
Comments
There are 13 vacant foreclosed homes in my neighborhood where I put down 20% with good credit 3 years ago. My house is now worth less than half what I paid, and I've had a job change resulting in 40% less income.
I have been trying to rework my mortgage with Chase since January 2009. Every single month since then they have asked me for paperwork that they lost. Fortunately, I have scanned to PDF everything I have ever sent and just reprint the lost documents and resend. I have sent some documents 5 times. The Bush administration sold my WAMU mortgage to Chase for 1% of its value which means they bought my home for about $5,000. Even if they foreclose they're still sitting with a property worth far more than they paid for it so they have a huge incentive to foreclose rather than to work with me. Should **I** have been given the chance to buy my home for $5,000??? Think of the money I'd spend jump starting the economy -- for the rest of my life.
Why I wouldn't want to walk away from a mortgage? Because I borrowed the money in good faith. If there was any way I could pay it back, I would because it's the RIGHT thing to do.
Doing the right thing because it's the right thing to do, stands on it's own and is rewarded. First by the self esteem that comes from doing the right thing no matter what and second IMO and experience the world rewards those that do what's right because it's right. They can obviously be trusted by their actions and words, so others want to do business with them and help them if help is needed.
I cant say I agree with staying in a house when the outlook is to be underwater for the forseeable future. I guess this is good news for me, while all of you are debt-slaves for the rest of your lives paying rent to the banks, im paying a modest rent. your lack of spendable income makes mine go that much further! when your done paying for your house, it will be worth a fraction of the total $ you spent... meanwhile Ill have a nice bank account, my corvette, and have had a good time spending my income. The banksters have done a great job jacking up the debt you take for buying a house, and your gonna do the "right thing" by staying in debt for life?!... nice. And for lawrence: no chase didnt buy your home from G W bush for $5000, chase paid $5000 for 27 years of you laboring to service your debt. lemme guess: they paid $5k for $800k over the life of the loan? remember that when your buzzer goes off on monday :)
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