Jeeeeez first, I'm usually 121st or even further down.
One working definition of the jingle mail might be "opportunity to scam the Man"
I mostly believe people would prefer
not to walk. American society has become rootless, therefore borrowers may appear ruthless, but really the underwritng 2003-2006 was witless
and now the nation will see more homeless.
For the seriously underwater with "no skin in the game" and the ability to pay, why not consider defaulting on the 2nd TD only and daring them to foreclose?
The second will see nothing in a foreclosure and should be willing to cut a deal on writing down the note. If they take, for instance, 10 cents on the dollar for the second, you've created "instant equity" and stayed in the house you never should have bought in the first place.
Obviously a non-recourse loan puts the borrower in a stronger position.
When you throw in the tax forgiveness on the written-off debt, there's an even stronger incentive to try it.
For those with greater knowledge, is this workable?
The specific answer is that if the 2nd mortgage is for purchase money AND clearly there is no equity sufficient to pay even the 1st mortgage, yes it would work.
It will work unless the 2nd mortgage holder is either irrational, spiteful, or has inflexible policies favoring foreclosure. There is really no way to know this in advance. If you are so far underwater that not even the 1st mortgage would be paid in a foreclosure sale, why not just stop paying both loans?
You are essentially paying rent since it will be years before breaking even on the house, so if you are paying rent why not just just get an actual rental for a much cheaper price in the rental market?
I'm starting to get the feeling Wall Street is marketing "jingle mail" as an excuse to its investors so they won't look too closely at Wall Street's role in the mess. "It's not our fault we sliced/diced and sold worthless paper. Look at all of the borrowers who are just walking away."
The American working class is under siege from the powers the be. They are devaluing our savings at an alarming rate. They are inflating the price we pay for necessities, food and fuel, at an alarming rate. They are devaluing the currency at an alarming rate.
The best way we can combat what they are doing to us is to stop buying everything unnecessary for daily survival. We can do our part to drive down inflation by refusing to buy no essential goods. We can cut our daily expenditures by walking away from money pits(houses) that we were told and thought were investments. The Fed wants to screw with working class Americans? We can screw right back. Take that you Privately Owned Federal Reserve Bank Corporation.
(2007 vintage won't be a "keeper"... off to a real bad start, and that's even with competition from a foul 2006... Oh for the sweet asymptotic taste of a 2003!)
When people dont have skin in the game, they behave like they dont have skin in the game, said Karl E. Case, a professor of economics at Wellesley College.
This is exactly right. Another way of making the same point: a contract is useless if the consequences of following it are worse than the consequences of breaching it.
Home loans made when prices are well above historical norms need to have greater downpayments/equity than average. Instead, during the greatest overshooting of the historical home price trendline in history, downpayment requirements were reduced. Reductions in downpayment requirements were justified using FICO and DTI and any other calculation that allowed lenders to appear diligent, even if that diligence was only in a narrow technical sense.
Tanta, I know you have an enormous number of facts in your head about historical loan affordability measures, and homeowner tendencies to walk-away, but none of that info is as relevant as the obvious recent incentives for homeowners in every category. When you buy a home with little of your own money, at a price that's way above the historical trendline, then when market prices start reverting you have an incentive to walk away/renege on the loan. For most people, eventually that incentive overcomes the desire to avoid credit or social damage. Everyone has their price, even most middle-class 'decent' folks.
"a contract is useless if the consequences of following it are worse than the consequences of breaching it."
To my distress, my son thinks like this when things aren't going his way; and he's a real stickler for contractual terms when conditions favor him. But I forgive him since he's only six...
So it's not necessary to wait for more data to see that lots of people will walk away as prices drop more and more. In fact, it wasn't necessary to wait until prices started to revert to long-term mean growth rates to know that low-downpayment borrowers would default in huge numbers. It was knowable all during the price run-up that low downpayment loans should not have been made, with very few exceptions.
Thanks for that link Cal. It would be interesting to track how this borrower performance has changed over the past couple months, and ongoing.
While I'm not qualified to comment on the methodology, it brings to mind that lenders throughout the period of reckless lending have had such analysis and insight at their fingertips. Industry insiders must have either been passing the old maid cards furiously, or, like Tanta and CR, pressing the panic button.
Well, I was told that people with 80% loans and high FICO's were very safe bets. And the 20% used to come from their parents or some other loan that they were eager to pay back. So if you could lend them both the 80% and the 20% it would be a good thing. And hey, if some other lender carried the second, then that made it safer still, because if they took the loss, you still had your 80%. Better still, you could go into the market and buy those seconds in a pool from that other lender, and they would insure them! How could you lose?
As Tanta says, it is difficult to distinguish those who walk away willingly and those who have to walk away, especially in the court of law.
Though, economic incentives to walk away grow as the negative equities accumulate. What prevent them from walking away? Psychological stigma? Fear of lower credit scores? Emotional attachment? Maybe, they simply value their homes more than the market price.
Some speculators may have none of them.
Even lawyers admit that limited liability issues can beget perverse incentives and some may act on them, right?
We know that the incentives are there, we just don't know how much they contribute to the foreclosure numbers.
I join FTWoods in seeing this as an attempt to deflect attention away from other parties - more searching for a poster child.
It's clear many borrowers stand in a novel relation to lenders at the moment, so no great mystery that the response may not resemble the past any more than the mortgages themselves do.
This USA Today article about consumers cutting back made me ill. More stupid anecdotes designed to make the person quoted look like the idiots they are.
"Visits to Spa Nordstrom (JWN) for Deshaun Davis are few now. The college professor from North Richland Hills, Texas, found herself spending $311.76 monthly at the department store's spa for such services as $85 facials and $25 lip waxes.
While she was in the store, she'd been known to saunter over to the sales floor and pick up a $100 pair of designer jeans.
Now, it's $19.95 jeans at Gap Outlet (GPS).
"I'm never going to pay $100 for jeans again," says Davis."
I really wish the MSM would stop calling these people "homeowners". If the bank owns 100% or more of the house these people don't own anything, and if they did make a down payment, they never did. If you view them as people who are making payments to a bank instead of a landlord, and who have obtained from the bank a cost free option on their house, it makes their decision to walk away easier to grasp.
Check out the graphics on the above pages.
Cal | 02.29.08 - 2:30 am | #
Cal,
Thanks! The chart on page 16 labeled Bonus Data,if current,makes me believe it all going to get much,much worse. I mean crap,the worst is still ahead for this year...
And next,and in 2010. Yowwwwsa.
I am supportive and sympathetive of all of these people , who have made a bet , realised that they lost and now have to do the best that they can to ptrotect their future.
In places like florida , california, las vegas along with lots of flippers , there are a lot of homw owners that have purchased homes genuinely in order to raise family.
Now that prices have fallen so much
and prices may not recover for a long time , these people will mostly be paying interest in the first few years and without the hope of gaining equity for a long time
The people who are unsympathetic and complaining looks like they must have gotten homes before the non-sense started ( before 2002 )
Its a lot easier to complain when they see that theeir homes have appreciated a lot during the boom times and having built enough equity
I hear what you're saying. It's all true. But every day, I watch a lot of solid hardhat Americans go to work here, at this condo construction project in Tampa funded by Corus Bank.
Every week, these guys put up at least one floor, maybe two. If you zoom in, you'll see that their work is oustanding. And it seems what you're telling me is...there's no gold at the end of the rainbow. All this fine construction work in Tampa will just end up to be a pile of worthless concrete and steel owned by Corus Bank.
WSJ serving up swiss cheese - beware of stories that begin by alleging:
"But mortgage-industry executives and consumer counselors say they are starting to see people who aren't in dire financial straits defaulting on their mortgages..."
And then subsequently fail to offer a single anecdote or supporting quote about such people (let alone real data). The Army vet's situation looks mighty dire to me (though it's conveniently never spelled out in the story). And there is absolutely no assertion by consumer counselors that in the story that their clients' situations aren't dire.
What's painfully apparent is the that the integrity of this story is in dire straits. Best advice to readers: just walk away.
Faced with likely waves of defaults, the lenders are trying to persuade all that the problem is "ruthless defaulters." That sounds much better than, "Wow. I guess they couldn't afford that mortgage after all. Whocouldanode?" How can ANYONE have any idea whether some stated income FB is defaulting by choice or necesssity?
I certainly think that jingle mail is on the rise. No doubt some of the borrowers COULD scrape up the money for payments. But it is stunnning to see the banking industry claim that the problem is those who could afford to continue payments when they did so little to find out what the borrowers could afford in the first place.
My guess is the building may be sold at discount in a Corus breakup. If its fate follows the 1990 template, it will become rental until condo conversion makes sense. Its sister property, Skypoint, is experiencing problems as you may imagine.
I'm also following a project in St. Petersburg - much nearer to completion and C.O. - where the tower floorplans and the views are particularly stunning. Could be an attractive buy in a few years' time.
Just to reiterate what others have already said . . . the actual claim being made here is that people who can afford to pay are walking away.
Well, the actual data I see on average DTIs--which I assume are wildly understated because they rely on introductory payments and stated income in too many cases--tells me these folks can't afford these homes in any realistic budgeting scenario.
Now, maybe people will make nasty financial sacrifices to keep a home as long as they don't think they're underwater--ramen and last year's shoes--but will decide those sacrifices are just not worth it in a falling price market.
But that's not saying they "could afford" these homes and walk away just because. It's saying they just finally give up on crushing housing costs.
And yes, I think this little bit of unsubstantiated folk wisdom is just too convenient for the folks who brought you these insane lending standards.
I think Tanta hit the nail on the head. Most people aren't basing the walking away on financials, they're basing it on their inconvenience threshold.
If the house was going up in value, many would suck it up knowing there was gold at the end of the rainbow. Currently, there is no gold, so why bother sacrificing when they don't have to.
Sterlingerl, you are spot on. My grandmother bought her house with a 30 year mortgage and didn't consider it "all hers" until she was free and clear. There was great satisfaction when that day came.
The vast majority of Americans are just high-class renters, bouncing from detached apartment to detached apartment (they call them "houses" these days) My grandmother became a HOMEOWNER. (and, thanks to her generosity in her will, I am a homeowner too.)
While hard data is hard to come by, and will be as long as the bankers don't want to think about what they have done, it's not too hard to think about who might and might not walk away.
All of the "investors" are certainly in the group of walkers. Some individuals/marrieds are likely also among the walkers. That second group seems to be who the banks want to talk about, but I'm not sure how large it is.
The only group I could think of who would try and hang on to a house when it is losing value and it is a struggle to keep on paying are families w/ kids in school. Basically, as long as you can afford to stay put in that situation, you stay put.
So how many people are "ruthless" in their default?
The NYT piece said YouWalkAway has 200 clients. There are nearly 10,000,000 underwater.
I assume if lots of people were actually walking away, the banks would find a way to stop it. They'd make an example of enough cases by sueing (for recourse loans, which are the majority). And reporters would print human interest stories about the poor person who tried to walk away and got sued into bankruptcy by the mean banks, together with a quote from the mean banker.
That no-one is trying to make an example of the people walking away suggests that not that many people are.
Gee, the banks make a whole bunch of junk loans, the people who got them were sucked into the whole affair by "teaser rates", "interest-only loans", and an entire industry of individuals who put on the wise demeanour of doctors, patted them on the back, and said "of COURSE you can afford it! Plus, since real estate only goes up, you can always renegotiate in the future!"
So the market crashes, a lot of people end up being underwater and discover that it would have been better renting after all....
And banks are surprised that people are walking away? Ha. I agree with the commentators above that this is an industry scrambling around for a scapegoat. It's not going to be that the banks had any responsibility in this at all, no, no. It's the Evil Homeowner who Just Decides To Not Pay Any More.
Isn't a mortgage just another contract? The lender (presumably) protects themselves with voluminous terms and conditions and the borrower "protects" themselves to the extent that they make sound assessments both of what they are contracting to buy as well as what they are capable of paying over time.
If either fails to adequately assess the risks (which, even under the best of situations and the best intentions happens from time to time) so what?
Mortgages don't say anything about the "morality" of issuing a bad loan any more than they state anything about the morality of someone chosing NOT to pay when it appears they are capable. The contract actually exists BECAUSE it assumes "morality" is not at issue for either party.
All that is at issue, in any contract, is the penalty for not performing. If one party decides (for whatever reason) not to perform they are subject to the conditions relating to that failure. The beauty of contracts is in their lack of regard for morality; they are (or should be) designed on the basis that failure (regardless of cause) is always a possiblity and aim to circumscribe (if not eliminate) potential loss (for BOTH parties).
Someone who walks on a mortgage or any contract, for whatever reason, makes a decision that this choice works for them (just like the choice of obtaining the mortgage). If the other, adult, party isn't prepared for that outcome, an outcome which is EXPLICITY part of the consideration of the contract, who's to blame?
As usual, a lot of posters are looking in the rear view mirror. The guy interviewed by The Times didn't talk about the economic benefits of just walking away.
He talked about how it relieved stress and chanaged his life.
This is a powerful idea, and the fact that MSM is reporting it will create a snowball.
A lot of people want to get out from under the Man and change their lives.
I agree with Jim. Here's a question for the real estate and/or UCC lawyers lurking about: what actually happens to the negative equity when the homeowner walks away?
Example: X owes $500,000 on house now worth $400,000. X walks away with no further contact with lender. Most likely outcome: Bank goes to foreclose, and ends up buying the property itself at the mortgage auction for $400,000, so it becomes REO. PRESUMABLY it would also be standard for the Bank to seek and obtain a deficiency judgment for the $100,000 of negative equity, right? I would assume that would be standard operating procedure even Bank never expects to see a dime of the judgment: they're already in court to foreclose and obtain clear title, so it's not like there's any significant additional legal fees to obtaining the deficiency judgment at the same time title passes, right?
And I understand the point that if the old homeowner really doesn't have any cash, there's no economic incentive for the Bank to incur legal fees trying to squeeze blood out of a turnip.
But (our presumed hypothetical here) if it turns out that the homeowner is in fact not only solvent, but moreover actually could cough up $100,000 to pay the deficiency -- well, then what's the issue? As Jim said, the fact that they're not doing so says to me that the Banks (who we can expect to be reasonably rational utility-maximizers) simply aren't faced with such people.
And, thus, suggests that the stories of these immoral-greedy-lying-scumsucking rich homeowners who are just walking away because they think they can, are just that: BS spin by Lenders attempting to demonize troubled homeowners...
I'm starting to get the feeling Wall Street is marketing "jingle mail" as an excuse to its investors so they won't look too closely at Wall Street's role in the mess. "It's not our fault we sliced/diced and sold worthless paper. Look at all of the borrowers who are just walking away."
Now THAT'S the kind of cynicism that makes me jealous.
I really wish the MSM would stop calling these people "homeowners". If the bank owns 100% or more of the house these people don't own anything,
The other bad part of the word is "home", as if these people had some sort of emotional attachment to their place of dwelling. Most of the time they don't even have 2 years in the place and looked at it as a cash cow investment and nothing more.
packerland: I don't think that in their wildest imaginations the Banks think that their are any sizeable number of defaulters who have assets sufficient to make the banks whole after foreclosure. Their assertion is that their are borrowers who could afford to continue to make monthly payments on their mortgage to AVOID foreclosure. Of course this assertion is based upon the idea that they BELIEVE that the shit manager at Burger King makes 85k/yr. AND that he is so lazy that he agreed to pay extra interest because he couldn't be bothered to find his W2s and paystubs.
YEAH. It's all the fault of "THE GREAT AND POWERFULL DOWNTURN. PAY NO ATTENTION TO THE UNDERWRITER BEHIND THE CURTAIN."
And yes, walking away could become more common, but the point of this post is to show that the absence of evidence that people who can afford to stay in are walking out is uh..absence of evidence (ya hear me, rummy?)
[And yes, I think this little bit of unsubstantiated folk wisdom is just too convenient for the folks who brought you these insane lending standards.]
It's the same propaganda they used to change the BK laws a few years ago. They'll keep repeating this lie until it's a proxy for ALL homeowners in foreclosure.
Tanta's right- the intention is to deflect attention away from the carelessness and ruthlessness of the people who masterminded, processed and sold this crap.
My opinion is that the first step in this mess was when they started scrapping the 28/36 standards. A reasonable person would look at a typical family budget and say that you probably ought to stay under those caps.
As a result, the mortgage industry's concept of "affordable" is, like most of their assumptions, WAY off base.
I think even if an "owner" owns the home free and clear, but still is on the hook for a 5K/year property tax on a 60K income then he is just leasing the property from the county/town.
It does when people lobby the government to change the terms to favor one side. We've got lenders looking for bailouts and we've got borrowers looking for bailouts, and those bailouts would have to affect otherwise uninvolved third parties,- that's where the morality comes in. And of course there are uninvolved third parties who WANT to stick their nose into the deal which doesn't help.
Tony Shifflett writes:
"What about those of us who want to do it right?"
We are basically screwed and have been getting screwed for some time with our existing system. Savers and responsible ones have been getting the shaft for years now.
Why are you savers complaining? You don't have to worry about some type of small thing biting you in the rear-end financially. For example, an un-budgeted repair on a car, an unforeseen medical expense, gas prices rising beyond what you can pay, etc.
In fact, with asset deflation you'll be in prime position to get a house when the house of cards starts to fall, and you're the type of people that lenders will be knocking themselves over to lend money to.
Would you really rather be 60-days behind on your payments to the home you really couldn't buy? And then having to deal with the types of things in life that come up and bite people (see first paragraph?).
I'm just starting on saving, but don't we have a negative savings rate in this country? Doesn't that mean people with savings are in a better position than those without? Think of it like a marathon, we're only on mile 10 but already half of the other competitors are out of water, and you've managed to actually increase your water supply up to this point. Do you think many of these people will make it to mile 26? By the way I hope you buy rope to cross the rattlesnake pit at mile 16, and you can afford a paddle and canoe to cross the alligator moat at mile 20.
I'd be surprised if 30% of American households didn't live month-to-month... and thats even with credit cards.
OK, interesting: everywhere I have owned a home, it has always been (as far as I know) a recourse mortgage.
However, with a little bit of googling, I have learned that in California, purchase money mortgages for homes (or small multi-unit buildings, up to 4 families) are, by California statute, nonrecourse.
So here's my NEXT question for the industry insiders: in light of that fact, is an otherwise identically situated buyer of an otherwise equally-priced home in California going to have to pay a slightly higher interest rate on his/her mortgage, compared to a buyer in (say) Wisconsin, where mortgages are typically recourse?
If the answer is "yes," then I have to say that the lenders' whining is absolutely shameless and disgusting, EVEN IF the homeowner walking away is perfectly solvent (and even in my unlikely case where the homeowner could pay off the deficiency in a lump sum) -- because if that's the case, then it's not even a "free put option" that we're talking about: it's a put option that the homeowner paid fair value for in the form of a slightly higher interest rate.
Jobs exported overseas, pension funds raided, downsizing and outsourcing a matter of course, bankruptcy laws rewritten, credit card terms saying we can change the rate and terms at any time for any reason on the debt you already have on account, gas and food prices going through the roof, health care coverage excluding nearly every illness you might contract or treatment you might need. Ruthlessness has clearly become acceptable practice.
And the wags on Fox news are concerned about the vilification of the rich. They call it class warfare even if all you do is point out that CEO salaries have increased by an order of magnitude relative to median incomes in the past 10 years. Gimme a break.
For the past ten years ruthlessness has been a one way street. No need to wonder where JSP got the idea.
Home equity was the only thing JSP had going for him. Now look what's happened.
Ruthless? Try desperate.
Anybody with kids whose 70% underwater owes it to their family to at least investigate the consequences of mailing in the keys vs the consequences of paying 50+% of their salary for overpriced housing throughout their kids' entire childhood. Can you say declining college enrollments and undereducated uncompetitive workforce?
The people with power and knowledge brought this on themselves-- they gambled that lower income people would never fight back. Now those people are fighting back-- individually, thru jingle mail; instead of collectively by legislation.
As people have commented before, this is really a question of recourse v. non-recourse. If you are $100K underwater and you walk away, you can be sure the bank will sue your butt for the $100K deficiency if it is a recourse loan. It doesn't cost them that much to do it (what is you defense exactly?) and even if you file bankruptcy, your looking at seven years of paying a good chunk of your income to Countrywide or whoever. The stories of people with six figure incomes walking away from a recourse loan are just that, stories. You can do it, just like you can walk away from your credit card loan, but they will sue you and you will have to pay or they will make your life uncomfortable.
For non-recourse loans, sure the only hit is to your credit rating; but my thought is that the majority of loan are recourse. TANTA, got any stats? I know mine sure is.
Doesn't that mean people with savings are in a better position than those without? That's a big it depends.... There are many loans, RE and CCs and corporate and auto etc., that the FBs are defaulting on. All that debt that won't get repaid was regarded by somebody else as savings that were invested. There are so many layers of Bonds, CDOs, LBOs, Money Market funds etc. that it is nearly impossible to tell whether any of that poof consists of YOUR money.
I'm going to sound tin-hatty here, but I have to ask, is the FDIC backed by the the full faith and credit of the U.S. Government?
Uh, as I recall, there was a lot of press on the virtue of managing your investment (house) to maximize its potential--pulling money out to finance other investments when interest rates were low, for instance. Now that the investment (house) isn't performing so well, people are doing what makes sense with a nonperforming asset.
It's all on the margins, folks. Anybody claiming that either the majority of defaulters are "ruthless" (though they're simply following Merton's model) or that there's no such thing as a ruthless defaulter is a fool. Having looked at consumer lending models in the past, I can assure you that high LTV is always a factor but seldom the only one in the mix. The effects are on the margins, where some % X of struggling homeowners who would otherwise have muddled through will go over the edge and walk away. The dangerous bit is that the effect is not a linear function of the decline in equity.
And to repeat a point that was made above, contracts and morality are two entirely different things.
You better believe the lenders are freaking out about walk-aways, recourse or not. If they are holding non-recourse paper they will take it in the teeth. Every 20% piggyback second purchase money mortgage is essentially an unsecured loan in many areas due to devaluation of homes, and the lender is entirely at the mercy of the borrower. The lenders stand to be massacred on these loans. They really have no choice but to take pennies on the dollar should the borrower hold their feet to the fire.
It's highly unlikely that the lenders are going to institute a mass campaign of lawsuits against borrowers to recover deficiencies in recourse loans. The lenders are going to have to head this thing off at the pass and write-down loan balances and lock in interest rates and try to keep people in these homes. That is where this behemoth of a problem is headed.
On the offf-chance this thread still has some life in it, Tanta reported a couple of months ago that up to now, even in recourse states, the presumption by the lender is that a defaulting borrower is so unlikely to have meaningful resources that filing for deficiency is essentially unheard of.
Of course, if there's a paradyme shift (I always wanted to use that phrase!) that indicates that a significant subset of jingle-mailers does have resources, then lenders tactics may change.
Disclaimer: I'm totally into this idea of "just walk away" and hope it becomes a movement!
Tanta's right : These people more than likely cannot infact afford the payments on the house - it is a crushing burden.
And Robert's right, once lenders got away from the 28% of income rule, they sealed their own fate.
There was a fascinating session of the Senate Banking Committee and Mortgage lenders about a year ago, after Bernanke first floated the idea of ONE MILLION dollar GSE loans. One senator asked the lenders what they thought was a reasonable income/mortgage ratio.
Astoundingly, the lender said 60%!!
Again astoundingly, none of the politicians questioned him as to the wisdom of making or taking out such a loan!!
If people can walk away from such crushing debt, they will. It's got nothing to do with "equity".
The people I feel bad for are the ones who put 20% down during this mess and are drowning under the burden of a too-high mortgage, even with a 30 year fixed.
I know somebody who is in that situation. There's a 100K downpayment at stake which, unfortunately, makes their decision much much more difficult.
More than likely, they'll stay and just completely cut all other life expenses to the barest of the bare bones.
Jeeeeez first, I'm usually 121st or even further down.
One working definition of the jingle mail might be "opportunity to scam the Man"
I mostly believe people would prefer
not to walk. American society has become rootless, therefore borrowers may appear ruthless, but really the underwritng 2003-2006 was witless
and now the nation will see more homeless.
For the seriously underwater with "no skin in the game" and the ability to pay, why not consider defaulting on the 2nd TD only and daring them to foreclose?
The second will see nothing in a foreclosure and should be willing to cut a deal on writing down the note. If they take, for instance, 10 cents on the dollar for the second, you've created "instant equity" and stayed in the house you never should have bought in the first place.
Obviously a non-recourse loan puts the borrower in a stronger position.
When you throw in the tax forgiveness on the written-off debt, there's an even stronger incentive to try it.
For those with greater knowledge, is this workable?
Jim, I wrote about this exact topic in "Jingle Mail and 2nd Mortgages in California"
See here:
Jingle Mail and 2nd Mortgages « Greg’s Law & Economics Blog
The specific answer is that if the 2nd mortgage is for purchase money AND clearly there is no equity sufficient to pay even the 1st mortgage, yes it would work.
It will work unless the 2nd mortgage holder is either irrational, spiteful, or has inflexible policies favoring foreclosure. There is really no way to know this in advance. If you are so far underwater that not even the 1st mortgage would be paid in a foreclosure sale, why not just stop paying both loans?
You are essentially paying rent since it will be years before breaking even on the house, so if you are paying rent why not just just get an actual rental for a much cheaper price in the rental market?
I'm starting to get the feeling Wall Street is marketing "jingle mail" as an excuse to its investors so they won't look too closely at Wall Street's role in the mess. "It's not our fault we sliced/diced and sold worthless paper. Look at all of the borrowers who are just walking away."
http://www.loanperformance.com/market_pulse/currentMP.pdf
60+ DAYS DELINQUENCY BY VINTAGE
p.11
p.13
p.14
p.15
Check out the graphics on the above pages.
The American working class is under siege from the powers the be. They are devaluing our savings at an alarming rate. They are inflating the price we pay for necessities, food and fuel, at an alarming rate. They are devaluing the currency at an alarming rate.
The best way we can combat what they are doing to us is to stop buying everything unnecessary for daily survival. We can do our part to drive down inflation by refusing to buy no essential goods. We can cut our daily expenditures by walking away from money pits(houses) that we were told and thought were investments. The Fed wants to screw with working class Americans? We can screw right back. Take that you Privately Owned Federal Reserve Bank Corporation.
Correction: That was "Non essential" goods.
"You Walk Away"
Is that the name of Ron Paul's bailout plan?
Re: Cal
I like Page 13. 2008 Alt-A "greater than" 80% LTV... wanna guess where that trend line is going to be? 1 in 25 loans delinquent after 90 days?
I'm just a peon engineer but those charts suggest that any loans made in the past 3 years are pure garbage...
Cal, great link... thanks!
(2007 vintage won't be a "keeper"... off to a real bad start, and that's even with competition from a foul 2006... Oh for the sweet asymptotic taste of a 2003!)
When people dont have skin in the game, they behave like they dont have skin in the game, said Karl E. Case, a professor of economics at Wellesley College.
This is exactly right. Another way of making the same point: a contract is useless if the consequences of following it are worse than the consequences of breaching it.
Home loans made when prices are well above historical norms need to have greater downpayments/equity than average. Instead, during the greatest overshooting of the historical home price trendline in history, downpayment requirements were reduced. Reductions in downpayment requirements were justified using FICO and DTI and any other calculation that allowed lenders to appear diligent, even if that diligence was only in a narrow technical sense.
Tanta, I know you have an enormous number of facts in your head about historical loan affordability measures, and homeowner tendencies to walk-away, but none of that info is as relevant as the obvious recent incentives for homeowners in every category. When you buy a home with little of your own money, at a price that's way above the historical trendline, then when market prices start reverting you have an incentive to walk away/renege on the loan. For most people, eventually that incentive overcomes the desire to avoid credit or social damage. Everyone has their price, even most middle-class 'decent' folks.
"a contract is useless if the consequences of following it are worse than the consequences of breaching it."
To my distress, my son thinks like this when things aren't going his way; and he's a real stickler for contractual terms when conditions favor him. But I forgive him since he's only six...
To finish my thought....
So it's not necessary to wait for more data to see that lots of people will walk away as prices drop more and more. In fact, it wasn't necessary to wait until prices started to revert to long-term mean growth rates to know that low-downpayment borrowers would default in huge numbers. It was knowable all during the price run-up that low downpayment loans should not have been made, with very few exceptions.
Thanks for that link Cal. It would be interesting to track how this borrower performance has changed over the past couple months, and ongoing.
While I'm not qualified to comment on the methodology, it brings to mind that lenders throughout the period of reckless lending have had such analysis and insight at their fingertips. Industry insiders must have either been passing the old maid cards furiously, or, like Tanta and CR, pressing the panic button.
Hoodanode isn't even ironic anymore.
Well, I was told that people with 80% loans and high FICO's were very safe bets. And the 20% used to come from their parents or some other loan that they were eager to pay back. So if you could lend them both the 80% and the 20% it would be a good thing. And hey, if some other lender carried the second, then that made it safer still, because if they took the loss, you still had your 80%. Better still, you could go into the market and buy those seconds in a pool from that other lender, and they would insure them! How could you lose?
These are two separate issues.
As Tanta says, it is difficult to distinguish those who walk away willingly and those who have to walk away, especially in the court of law.
Though, economic incentives to walk away grow as the negative equities accumulate. What prevent them from walking away? Psychological stigma? Fear of lower credit scores? Emotional attachment? Maybe, they simply value their homes more than the market price.
Some speculators may have none of them.
Even lawyers admit that limited liability issues can beget perverse incentives and some may act on them, right?
We know that the incentives are there, we just don't know how much they contribute to the foreclosure numbers.
I join FTWoods in seeing this as an attempt to deflect attention away from other parties - more searching for a poster child.
It's clear many borrowers stand in a novel relation to lenders at the moment, so no great mystery that the response may not resemble the past any more than the mortgages themselves do.
This USA Today article about consumers cutting back made me ill. More stupid anecdotes designed to make the person quoted look like the idiots they are.
"Visits to Spa Nordstrom (JWN) for Deshaun Davis are few now. The college professor from North Richland Hills, Texas, found herself spending $311.76 monthly at the department store's spa for such services as $85 facials and $25 lip waxes.
While she was in the store, she'd been known to saunter over to the sales floor and pick up a $100 pair of designer jeans.
Now, it's $19.95 jeans at Gap Outlet (GPS).
"I'm never going to pay $100 for jeans again," says Davis."
Consumers cut back on small pleasures - USATODAY.com
This is the best quote:
Trends guru Faith Popcorn puts it this way: "It's cooler not to spend."
I'm a third. Too many shill types using their most hypnotic tones. I truly wonder what they think would happen if everyone really did Just Walk Away?
I really wish the MSM would stop calling these people "homeowners". If the bank owns 100% or more of the house these people don't own anything, and if they did make a down payment, they never did. If you view them as people who are making payments to a bank instead of a landlord, and who have obtained from the bank a cost free option on their house, it makes their decision to walk away easier to grasp.
I meant if the "didn't" make a down payment
What happened to ambac?-
"Assured Guaranty Ltd. Announces Commitment by Wilbur Ross to Purchase Up to $1 Billion of Common Equity"
Expired
Check out the graphics on the above pages.
Cal | 02.29.08 - 2:30 am | #
Cal,
Thanks! The chart on page 16 labeled Bonus Data,if current,makes me believe it all going to get much,much worse. I mean crap,the worst is still ahead for this year...
And next,and in 2010. Yowwwwsa.
Chris
I am supportive and sympathetive of all of these people , who have made a bet , realised that they lost and now have to do the best that they can to ptrotect their future.
In places like florida , california, las vegas along with lots of flippers , there are a lot of homw owners that have purchased homes genuinely in order to raise family.
Now that prices have fallen so much
and prices may not recover for a long time , these people will mostly be paying interest in the first few years and without the hope of gaining equity for a long time
The people who are unsympathetic and complaining looks like they must have gotten homes before the non-sense started ( before 2002 )
Its a lot easier to complain when they see that theeir homes have appreciated a lot during the boom times and having built enough equity
I hear what you're saying. It's all true. But every day, I watch a lot of solid hardhat Americans go to work here, at this condo construction project in Tampa funded by Corus Bank.
Novare Group: Construction Camera
Every week, these guys put up at least one floor, maybe two. If you zoom in, you'll see that their work is oustanding. And it seems what you're telling me is...there's no gold at the end of the rainbow. All this fine construction work in Tampa will just end up to be a pile of worthless concrete and steel owned by Corus Bank.
Isn't that so?
WSJ serving up swiss cheese - beware of stories that begin by alleging:
"But mortgage-industry executives and consumer counselors say they are starting to see people who aren't in dire financial straits defaulting on their mortgages..."
And then subsequently fail to offer a single anecdote or supporting quote about such people (let alone real data). The Army vet's situation looks mighty dire to me (though it's conveniently never spelled out in the story). And there is absolutely no assertion by consumer counselors that in the story that their clients' situations aren't dire.
What's painfully apparent is the that the integrity of this story is in dire straits. Best advice to readers: just walk away.
Faced with likely waves of defaults, the lenders are trying to persuade all that the problem is "ruthless defaulters." That sounds much better than, "Wow. I guess they couldn't afford that mortgage after all. Whocouldanode?" How can ANYONE have any idea whether some stated income FB is defaulting by choice or necesssity?
I certainly think that jingle mail is on the rise. No doubt some of the borrowers COULD scrape up the money for payments. But it is stunnning to see the banking industry claim that the problem is those who could afford to continue payments when they did so little to find out what the borrowers could afford in the first place.
Ah, Rich . . .
. . . so you did go look at element after all!
My guess is the building may be sold at discount in a Corus breakup. If its fate follows the 1990 template, it will become rental until condo conversion makes sense. Its sister property, Skypoint, is experiencing problems as you may imagine.
I'm also following a project in St. Petersburg - much nearer to completion and C.O. - where the tower floorplans and the views are particularly stunning. Could be an attractive buy in a few years' time.
Welcome To Signature
Just to reiterate what others have already said . . . the actual claim being made here is that people who can afford to pay are walking away.
Well, the actual data I see on average DTIs--which I assume are wildly understated because they rely on introductory payments and stated income in too many cases--tells me these folks can't afford these homes in any realistic budgeting scenario.
Now, maybe people will make nasty financial sacrifices to keep a home as long as they don't think they're underwater--ramen and last year's shoes--but will decide those sacrifices are just not worth it in a falling price market.
But that's not saying they "could afford" these homes and walk away just because. It's saying they just finally give up on crushing housing costs.
And yes, I think this little bit of unsubstantiated folk wisdom is just too convenient for the folks who brought you these insane lending standards.
I think Tanta hit the nail on the head. Most people aren't basing the walking away on financials, they're basing it on their inconvenience threshold.
If the house was going up in value, many would suck it up knowing there was gold at the end of the rainbow. Currently, there is no gold, so why bother sacrificing when they don't have to.
Sterlingerl, you are spot on. My grandmother bought her house with a 30 year mortgage and didn't consider it "all hers" until she was free and clear. There was great satisfaction when that day came.
The vast majority of Americans are just high-class renters, bouncing from detached apartment to detached apartment (they call them "houses" these days) My grandmother became a HOMEOWNER. (and, thanks to her generosity in her will, I am a homeowner too.)
I agree that the MSM is looking for a poster child that is acceptable to the REIC.
Retsinas and Sinai are both bought and paid for by the REIC and are both in the housing bubble hall of shame.
I can just see it now, their funders sitting down in a meeting room saying find me someone to pin this on.
While hard data is hard to come by, and will be as long as the bankers don't want to think about what they have done, it's not too hard to think about who might and might not walk away.
All of the "investors" are certainly in the group of walkers. Some individuals/marrieds are likely also among the walkers. That second group seems to be who the banks want to talk about, but I'm not sure how large it is.
The only group I could think of who would try and hang on to a house when it is losing value and it is a struggle to keep on paying are families w/ kids in school. Basically, as long as you can afford to stay put in that situation, you stay put.
So how many people are "ruthless" in their default?
Good morning, Mr Macklowe. How are your buildings doing? Or aren't they your buildings any more?
The NYT piece said YouWalkAway has 200 clients. There are nearly 10,000,000 underwater.
I assume if lots of people were actually walking away, the banks would find a way to stop it. They'd make an example of enough cases by sueing (for recourse loans, which are the majority). And reporters would print human interest stories about the poor person who tried to walk away and got sued into bankruptcy by the mean banks, together with a quote from the mean banker.
That no-one is trying to make an example of the people walking away suggests that not that many people are.
Gee, the banks make a whole bunch of junk loans, the people who got them were sucked into the whole affair by "teaser rates", "interest-only loans", and an entire industry of individuals who put on the wise demeanour of doctors, patted them on the back, and said "of COURSE you can afford it! Plus, since real estate only goes up, you can always renegotiate in the future!"
So the market crashes, a lot of people end up being underwater and discover that it would have been better renting after all....
And banks are surprised that people are walking away? Ha. I agree with the commentators above that this is an industry scrambling around for a scapegoat. It's not going to be that the banks had any responsibility in this at all, no, no. It's the Evil Homeowner who Just Decides To Not Pay Any More.
Isn't a mortgage just another contract? The lender (presumably) protects themselves with voluminous terms and conditions and the borrower "protects" themselves to the extent that they make sound assessments both of what they are contracting to buy as well as what they are capable of paying over time.
If either fails to adequately assess the risks (which, even under the best of situations and the best intentions happens from time to time) so what?
Mortgages don't say anything about the "morality" of issuing a bad loan any more than they state anything about the morality of someone chosing NOT to pay when it appears they are capable. The contract actually exists BECAUSE it assumes "morality" is not at issue for either party.
All that is at issue, in any contract, is the penalty for not performing. If one party decides (for whatever reason) not to perform they are subject to the conditions relating to that failure. The beauty of contracts is in their lack of regard for morality; they are (or should be) designed on the basis that failure (regardless of cause) is always a possiblity and aim to circumscribe (if not eliminate) potential loss (for BOTH parties).
Someone who walks on a mortgage or any contract, for whatever reason, makes a decision that this choice works for them (just like the choice of obtaining the mortgage). If the other, adult, party isn't prepared for that outcome, an outcome which is EXPLICITY part of the consideration of the contract, who's to blame?
"Morality" has nothing to do with contracts.
This whole thing depresses me. I'm one of those that's been patiently saving his money to buy a place. And now all this crap hits the fan.
I'm old enough to know for sure that this is gonna kick me in the ass somewhow. What about those of us who want to do it right?
As usual, a lot of posters are looking in the rear view mirror. The guy interviewed by The Times didn't talk about the economic benefits of just walking away.
He talked about how it relieved stress and chanaged his life.
This is a powerful idea, and the fact that MSM is reporting it will create a snowball.
A lot of people want to get out from under the Man and change their lives.
Obama = spirtual leader of just walk away.
It's gonna be big!
I agree with Jim. Here's a question for the real estate and/or UCC lawyers lurking about: what actually happens to the negative equity when the homeowner walks away?
Example: X owes $500,000 on house now worth $400,000. X walks away with no further contact with lender. Most likely outcome: Bank goes to foreclose, and ends up buying the property itself at the mortgage auction for $400,000, so it becomes REO. PRESUMABLY it would also be standard for the Bank to seek and obtain a deficiency judgment for the $100,000 of negative equity, right? I would assume that would be standard operating procedure even Bank never expects to see a dime of the judgment: they're already in court to foreclose and obtain clear title, so it's not like there's any significant additional legal fees to obtaining the deficiency judgment at the same time title passes, right?
And I understand the point that if the old homeowner really doesn't have any cash, there's no economic incentive for the Bank to incur legal fees trying to squeeze blood out of a turnip.
But (our presumed hypothetical here) if it turns out that the homeowner is in fact not only solvent, but moreover actually could cough up $100,000 to pay the deficiency -- well, then what's the issue? As Jim said, the fact that they're not doing so says to me that the Banks (who we can expect to be reasonably rational utility-maximizers) simply aren't faced with such people.
And, thus, suggests that the stories of these immoral-greedy-lying-scumsucking rich homeowners who are just walking away because they think they can, are just that: BS spin by Lenders attempting to demonize troubled homeowners...
I'm starting to get the feeling Wall Street is marketing "jingle mail" as an excuse to its investors so they won't look too closely at Wall Street's role in the mess. "It's not our fault we sliced/diced and sold worthless paper. Look at all of the borrowers who are just walking away."
Now THAT'S the kind of cynicism that makes me jealous.
I really wish the MSM would stop calling these people "homeowners". If the bank owns 100% or more of the house these people don't own anything,
The other bad part of the word is "home", as if these people had some sort of emotional attachment to their place of dwelling. Most of the time they don't even have 2 years in the place and looked at it as a cash cow investment and nothing more.
packerland: I don't think that in their wildest imaginations the Banks think that their are any sizeable number of defaulters who have assets sufficient to make the banks whole after foreclosure. Their assertion is that their are borrowers who could afford to continue to make monthly payments on their mortgage to AVOID foreclosure. Of course this assertion is based upon the idea that they BELIEVE that the shit manager at Burger King makes 85k/yr. AND that he is so lazy that he agreed to pay extra interest because he couldn't be bothered to find his W2s and paystubs.
YEAH. It's all the fault of "THE GREAT AND POWERFULL DOWNTURN. PAY NO ATTENTION TO THE UNDERWRITER BEHIND THE CURTAIN."
Well that was supposed to be "shift manager," but I think we can regard that as a Freudian typo.
Jim a, lol
And yes, walking away could become more common, but the point of this post is to show that the absence of evidence that people who can afford to stay in are walking out is uh..absence of evidence (ya hear me, rummy?)
[And yes, I think this little bit of unsubstantiated folk wisdom is just too convenient for the folks who brought you these insane lending standards.]
It's the same propaganda they used to change the BK laws a few years ago. They'll keep repeating this lie until it's a proxy for ALL homeowners in foreclosure.
Tanta's right- the intention is to deflect attention away from the carelessness and ruthlessness of the people who masterminded, processed and sold this crap.
My opinion is that the first step in this mess was when they started scrapping the 28/36 standards. A reasonable person would look at a typical family budget and say that you probably ought to stay under those caps.
As a result, the mortgage industry's concept of "affordable" is, like most of their assumptions, WAY off base.
Dale | 02.29.08 - 8:45 am | #
I think even if an "owner" owns the home free and clear, but still is on the hook for a 5K/year property tax on a 60K income then he is just leasing the property from the county/town.
"Morality" has nothing to do with contracts.
It does when people lobby the government to change the terms to favor one side. We've got lenders looking for bailouts and we've got borrowers looking for bailouts, and those bailouts would have to affect otherwise uninvolved third parties,- that's where the morality comes in. And of course there are uninvolved third parties who WANT to stick their nose into the deal which doesn't help.
Tony Shifflett writes:
"What about those of us who want to do it right?"
We are basically screwed and have been getting screwed for some time with our existing system. Savers and responsible ones have been getting the shaft for years now.
Good luck.
Tanta-
I understand your skepticism but borrowers are walking away because they do not have skin in the game.
They are letting their free put go to option heaven.
If I was upside down by $100K I would walk away.
JT
Why are you savers complaining? You don't have to worry about some type of small thing biting you in the rear-end financially. For example, an un-budgeted repair on a car, an unforeseen medical expense, gas prices rising beyond what you can pay, etc.
In fact, with asset deflation you'll be in prime position to get a house when the house of cards starts to fall, and you're the type of people that lenders will be knocking themselves over to lend money to.
Would you really rather be 60-days behind on your payments to the home you really couldn't buy? And then having to deal with the types of things in life that come up and bite people (see first paragraph?).
I'm just starting on saving, but don't we have a negative savings rate in this country? Doesn't that mean people with savings are in a better position than those without? Think of it like a marathon, we're only on mile 10 but already half of the other competitors are out of water, and you've managed to actually increase your water supply up to this point. Do you think many of these people will make it to mile 26? By the way I hope you buy rope to cross the rattlesnake pit at mile 16, and you can afford a paddle and canoe to cross the alligator moat at mile 20.
I'd be surprised if 30% of American households didn't live month-to-month... and thats even with credit cards.
OK, interesting: everywhere I have owned a home, it has always been (as far as I know) a recourse mortgage.
However, with a little bit of googling, I have learned that in California, purchase money mortgages for homes (or small multi-unit buildings, up to 4 families) are, by California statute, nonrecourse.
So here's my NEXT question for the industry insiders: in light of that fact, is an otherwise identically situated buyer of an otherwise equally-priced home in California going to have to pay a slightly higher interest rate on his/her mortgage, compared to a buyer in (say) Wisconsin, where mortgages are typically recourse?
If the answer is "yes," then I have to say that the lenders' whining is absolutely shameless and disgusting, EVEN IF the homeowner walking away is perfectly solvent (and even in my unlikely case where the homeowner could pay off the deficiency in a lump sum) -- because if that's the case, then it's not even a "free put option" that we're talking about: it's a put option that the homeowner paid fair value for in the form of a slightly higher interest rate.
Warning: rant to follow
It's about time JSP got a chance to be ruthless.
Jobs exported overseas, pension funds raided, downsizing and outsourcing a matter of course, bankruptcy laws rewritten, credit card terms saying we can change the rate and terms at any time for any reason on the debt you already have on account, gas and food prices going through the roof, health care coverage excluding nearly every illness you might contract or treatment you might need. Ruthlessness has clearly become acceptable practice.
And the wags on Fox news are concerned about the vilification of the rich. They call it class warfare even if all you do is point out that CEO salaries have increased by an order of magnitude relative to median incomes in the past 10 years. Gimme a break.
For the past ten years ruthlessness has been a one way street. No need to wonder where JSP got the idea.
Home equity was the only thing JSP had going for him. Now look what's happened.
Ruthless? Try desperate.
Anybody with kids whose 70% underwater owes it to their family to at least investigate the consequences of mailing in the keys vs the consequences of paying 50+% of their salary for overpriced housing throughout their kids' entire childhood. Can you say declining college enrollments and undereducated uncompetitive workforce?
Okay, got that off my chest. /rant
I'm glad Robert brought up that the financial industry put on a big lobbying push that lasted for years to get bankruptcy laws "reformed" so as to favor banks and credit cards even more than they did before.
Bankruptcy Abuse Prevention and Consumer Protection Act - Wikipedia, the free encyclopedia
The people with power and knowledge brought this on themselves-- they gambled that lower income people would never fight back. Now those people are fighting back-- individually, thru jingle mail; instead of collectively by legislation.
As people have commented before, this is really a question of recourse v. non-recourse. If you are $100K underwater and you walk away, you can be sure the bank will sue your butt for the $100K deficiency if it is a recourse loan. It doesn't cost them that much to do it (what is you defense exactly?) and even if you file bankruptcy, your looking at seven years of paying a good chunk of your income to Countrywide or whoever. The stories of people with six figure incomes walking away from a recourse loan are just that, stories. You can do it, just like you can walk away from your credit card loan, but they will sue you and you will have to pay or they will make your life uncomfortable.
For non-recourse loans, sure the only hit is to your credit rating; but my thought is that the majority of loan are recourse. TANTA, got any stats? I know mine sure is.
Cr:
you better be careful doing analysis on Tanta's writings. You get it wrong and your going to get a fuzzy slipper planted up your backside.
Doesn't that mean people with savings are in a better position than those without? That's a big it depends.... There are many loans, RE and CCs and corporate and auto etc., that the FBs are defaulting on. All that debt that won't get repaid was regarded by somebody else as savings that were invested. There are so many layers of Bonds, CDOs, LBOs, Money Market funds etc. that it is nearly impossible to tell whether any of that poof consists of YOUR money.
I'm going to sound tin-hatty here, but I have to ask, is the FDIC backed by the the full faith and credit of the U.S. Government?
Uh, as I recall, there was a lot of press on the virtue of managing your investment (house) to maximize its potential--pulling money out to finance other investments when interest rates were low, for instance. Now that the investment (house) isn't performing so well, people are doing what makes sense with a nonperforming asset.
It's all on the margins, folks. Anybody claiming that either the majority of defaulters are "ruthless" (though they're simply following Merton's model) or that there's no such thing as a ruthless defaulter is a fool. Having looked at consumer lending models in the past, I can assure you that high LTV is always a factor but seldom the only one in the mix. The effects are on the margins, where some % X of struggling homeowners who would otherwise have muddled through will go over the edge and walk away. The dangerous bit is that the effect is not a linear function of the decline in equity.
And to repeat a point that was made above, contracts and morality are two entirely different things.
You better believe the lenders are freaking out about walk-aways, recourse or not. If they are holding non-recourse paper they will take it in the teeth. Every 20% piggyback second purchase money mortgage is essentially an unsecured loan in many areas due to devaluation of homes, and the lender is entirely at the mercy of the borrower. The lenders stand to be massacred on these loans. They really have no choice but to take pennies on the dollar should the borrower hold their feet to the fire.
It's highly unlikely that the lenders are going to institute a mass campaign of lawsuits against borrowers to recover deficiencies in recourse loans. The lenders are going to have to head this thing off at the pass and write-down loan balances and lock in interest rates and try to keep people in these homes. That is where this behemoth of a problem is headed.
You want some data check out this recent post by Mish on a pool of AltA mortgages from Wamu. Stunning default rate.
Mish's Global Economic Trend Analysis: Evidence of "Walking Away" In WaMu Mortgage Pool
On the offf-chance this thread still has some life in it, Tanta reported a couple of months ago that up to now, even in recourse states, the presumption by the lender is that a defaulting borrower is so unlikely to have meaningful resources that filing for deficiency is essentially unheard of.
Of course, if there's a paradyme shift (I always wanted to use that phrase!) that indicates that a significant subset of jingle-mailers does have resources, then lenders tactics may change.
Disclaimer: I'm totally into this idea of "just walk away" and hope it becomes a movement!
Tanta's right : These people more than likely cannot infact afford the payments on the house - it is a crushing burden.
And Robert's right, once lenders got away from the 28% of income rule, they sealed their own fate.
There was a fascinating session of the Senate Banking Committee and Mortgage lenders about a year ago, after Bernanke first floated the idea of ONE MILLION dollar GSE loans. One senator asked the lenders what they thought was a reasonable income/mortgage ratio.
Astoundingly, the lender said 60%!!
Again astoundingly, none of the politicians questioned him as to the wisdom of making or taking out such a loan!!
If people can walk away from such crushing debt, they will. It's got nothing to do with "equity".
The people I feel bad for are the ones who put 20% down during this mess and are drowning under the burden of a too-high mortgage, even with a 30 year fixed.
I know somebody who is in that situation. There's a 100K downpayment at stake which, unfortunately, makes their decision much much more difficult.
More than likely, they'll stay and just completely cut all other life expenses to the barest of the bare bones.