Bankers and housing analysts say many homeowners, owing more than their homes are worth, are defaulting on their loans even when they can afford payments. But no hard numbers back up their claims.
story here: http://www.latimes.com/business/la-fi-wa...
So, the banks don't know how much of this is really going on?
I don't have any idea how many people are doing this but I do remember that several people have posted on Piggington that they were seriously thinking of doing this because their homes had lost so much value.
There's no way foreclosures and defaults could zoom up as they have without a significant proportion of "ruthless" defaults.
A couple of points to consider:
1) ARMs are actually likely to reset lower in the current environment, as the FFR has fallen 325 bps.
2) Reports indicate that the majority of current defaults occur before mortgages reset (which would be more problematic for IOs with balloon or delayed amortization and negams.)
"ARMs are actually likely to reset lower in the current environment, as the FFR has fallen 325 bps. "
I thought that too, but my nephew is over 100k upsidedown and able to pay. His mortgage HAS gone up at least 400 a month. He is trying to negociate with his bank to lower the amount owed. He is considering walking. He doesn't want to though because it will hurt his credit.
I just don't see banks wanting to disclose this information. Think about the implications.
Right now banks are doing little to nothing about people missing payments. If banks start announcing how many people are walking away, the next logical question is what are they doing about it?
When the answer is nothing it will invite an onslaught of upside down "homeowners" who once dreamed of selling for a massive profit to walk too.
ARM rates are not tied to FFR.
Many subprime borrowers have margins of up to 5.00% above their index. Prime ARM's have lower margins. Never assume anything. Many people with high credit scores got screwed into a subprime ARM by a mortgage predator.
Most people with ARM's have no clue what their margin or index is or what it's based on or tied to.
Even if a borrower's rate was to stay the same, their payment will go up in most cases as most must start paying P&I on an shorter amortization period.
If someone had a 3YR ARM interest only, upon adjusting, many will have a P&I payment due with a 27 YR amortization based on their new rate, which in most cases will adjust again in 6 or 12 months.
I believe that most of the talk of "walkers" and "jingle mail" is just urban legend BS.
People are foolish if they walk early or send in keys.
They are getting foreclosed on, most aren't just "walking away"
Foreclosure is a legal process. It takes time. Leaving a house sit empty while you could be living there for free is pretty dumb, although there are a lot of dumb people involved.
I have read of cases where people have been in their houses for 12-16 months without paying before actually being foreclosed on.
Wait and see what's lurking around the corner. To keep people from walking, they are talking about refinancing people into new loans for 120% of the value of the home today...
AND cutting the principal balances for others to reality today.
Think stock market crash with the govt trying to figure out how to keep people paying for the stocks that they bought with borrowed money at inflated levels, so they don't dump them on the market to depress the market further.
Try ANYTHING to keep people from walking away...
The few in govt that really understand what is happening are crapping their pants. Others are just overpaid idiots.
Jenna Bush is consummating her marriage tonight, I wouldn't be surprised if her daddy had a few extra drinks today. It was a perfect excuse so he can get one good nights sleep.
His headache isn't going to be gone in the morning.
" In response to questions from The Times, Bank of America spokesman Terry Francisco said the bank had seen indications that some homeowners were taking pains to keep their credit card accounts current at the expense of their mortgage balances, often by raiding their home equity lines to pay their cards, a reversal of traditional customary customer priorities. "
I'm thinking this is because of the new bankruptcy laws that make it more difficult for CC debt to be forgiven more so than mortgages. Change the mortgage rules and relax the CC bankruptcy rules, and you'll have the opposite problem.
selfportrait
----- Sour grapes for everyone!
ARM rates are not tied to FFR.
LIBOR generally follows the FFR, although the tracking is less than usual of late.
I believe that most of the talk of "walkers" and "jingle mail" is just urban legend BS.
Think stock market crash with the govt trying to figure out how to keep people paying for the stocks that they bought with borrowed money at inflated levels, so they don't dump them on the market to depress the market further.
Try ANYTHING to keep people from walking away...
The few in govt that really understand what is happening are crapping their pants. Others are just overpaid idiots.
So which is it? Is "walking away" a myth, or is it a problem of systemic proportions?
nm
Depends on your definition of "walking away"
It's not a huge % yet (although it might be next year)
"Generally" speaking is what got lots of people into this mess.
Last 30 days 6 month libor is up 7.50% FFR is down 11%
I'm thinking this is because of the new bankruptcy laws that make it more difficult for CC debt to be forgiven more so than mortgages. Change the mortgage rules and relax the CC bankruptcy rules, and you'll have the opposite problem.
I kinda doubt that's the reason. This would require a level of knowledge of bankruptcy laws which most people don't have.
More likely, homeowners who didn't put anything down don't really care if they lose their house or not. I bet people who put 20% down aren't so nonchalant about losing their home.
http://www.youwalkaway.com/
There's been an interview with the founder of this company where he states the volume of business he's doing. But I dont remember what it was. It is in SD County somewhere.
As for cc debt, I've seen some interest conjecture that claims many people rely so strongly on their cc for surviving from day to day that they would rather lose their house than their access to credit cards. I guess one can always rent, but eating takes a priority over home ownership.
"Bankers and housing analysts say many homeowners, owing more than their homes are worth, are defaulting on their loans even when they can afford payments. But no hard numbers back up their claims."
Defaults are easy to measure, but its much harder to calculate the causes of defaults. Especially when measuring something as nebulous as "affordability." I wouldn't be so quick to dismiss "walking away" as a myth because banks don't have hard evidence to prove it, but its an interesting argument.
Also, there hasn't been much recent discussion of the Mortgage Forgiveness Debt Relief Act of 2007, in which the IRS makes it much easier to walk away from mortgage loan obligations by not requiring mortgage holders to pay income tax on forgiven debt. This act makes it far more advantageous to "walk away" if you owe more on your home than it is currently worth, and in my opinion is significantly contributing to the increase in defaults.
The act expires in 2009, after which time I expect default rates to return to more historical norms (whatever those are). Until this act expires, walking away is a very advantageous choice to those that are underwater on their loans.
http://www.irs.gov/individuals/article/0...
Furthermore, youwalkaway.com is doing pretty well charging $999 per trick. A myth? I don't think so.
Ruthless defaults are absolutely occurring - this is no secret to those inside the industry. They are happening in very noticeable numbers. The concerns moving forward are the effects on ability due primarily to upward modification of payments and, to a lesser extent, income reduction. I'm talking about those who have ability now but may not moving forward. Big, big issue in the industry. The fizzle of the Great Re-set Tsunami of 2008 has granted the industry (and borrowers) temporary reprieve, but there are storm clouds on the horizon.
Those who maintain ability to pay regardless of re-sets are in a different category and are the real wildcard here. Wildcards are dangerous. There is certainly a growing belief in the industry that these folks' credit is for sale if the price is right. It's a combination of being underwater by enough and having a re-set that pushes the spread between the mortgage and a comparable rental to a number that is too attractive to pass up. What's your credit worth - erase $200K in negative equity and decrease my monthly housing cost by $2500 - hit the deal button. Credit for sale.
I just don't see a way out other than loan mods - including interest rate freezes, rate reductions and balance write-downs. Dodd-Frank are on the right track, at least in terms of identifying the solutions. I'm not saying a govt bailout is the way to go, but modifications need to be made if they want to contain the ruthless defaults. Otherwise, it's truly a free market wild ride. Which I'm not necessarily against. But I don't think we're going to avoid more major intervention and industry gymnastics.
Again, it depends on your definition of a walker..
Someone who has no choice and cannot afford to pay or refi is a REALLY FB...not a walker to me.
A walker to me is someone who CAN pay, but chooses not to, after 6-7 months+ of no payments... I think that is going to increase dramatically...
Obviously, there's no shortage of REALLY FB's today.
As DaC says,, it's simply a question of DEAL or NO DEAL.
Once the govt starts bailing out the IRresponsible, the riots will start from the responsible until they get bailed out too...it's either that or the responsible will quickly become IRresponsible to save $100K-$200K of net worth.
Plenty of people with 700-800 credit scores would toss their score in the ring to save $100K +++...
Credit scores can be rebuilt alot faster than saving 6 figures++ of after tax cash for vast majority of people.
If the Fed can basically ruin the value of the money I've saved and invested over the years with their bail-out frenzy, why should I pay back a loan that's $200K more than the value of the house it's against? Ability to pay has little to do with it. It's a business decision, kinda like the decisions they make on Wall Street!!
There's really a lot of incentives for people who are upside down right now to walk away. The gov has a tax reprieve on the forgiven debt this year, home prices keep falling and we're in a recession. And as someone stated in an earlier post, rebuilding a credit score is a lot easier than accumulating the $200K I just lost in my house.
Welcome to the party..
I hope that you enjoy yourself.
May as well have a lot to drink, either way, the headaches won't be gone in the morning.