this is such interesting stuff. you can see how this is all going to go downhill.
if someone has an 80/20….and has NO equity…and then just decides to “default” and stop paying… what are the banks really going to do? take the house and sell it at a loss?
if you tell them you can’t afford to pay…will they negotiate with you for new terms?
or negotiate for a new/lower rate? i guess for many peole it will depend HOW bad they are underwater, can they afford to keep the house at the “new” price/rate, and how bad will it FUBAR their credit/do they care?
suppose you bought a house at 500k. now it’s worth 350k. you are 150k upside down. you have a rate that is so so on your first, and sucks on a second. assume they aren’t ARMS but 30 year fixeds… you could call up the lender and just say, the house is worth less, I don’t want to eat the loss, so I’m gonna walk and let you hae the 150k loss. unless you sweeten the pot. just basically extort it out of them.
what are they going to do? if you have never refi-d your house..then you are perfectly able to walk away, mail them the keys, and have no repurcussions, other than your credit being tanked. if you tell the lender, you want the second wiped out, or you want the interest rate reduced…
hell, figure out what their REAL loss will be if you walk, and then extort better terms out of them that are better for YOU but NOT as bad as the defalt scenario, and heck, maye they would take it?
anyone think that the banks would concede to this kind of commando/in your face/I’m gonna screw you if you don’t sweeten the pot kind of attitude or would they say F you, get out, we’ll just foreclose..even though they will take a bath if they foreclose on the house???
with the huge number of 100% financed houses…there are PILES of peopel with LITERALLy no equity in a house, and mentally, nothing to lose by walking away. when you put down 20%, walking away hurts b/c you lost your investment. even if the house depreciated a lot and that 20% isn’t really there anymore…it still feels like you are losing your money to walk away from the house. BUT if you ptu down ZERO dollars, and the house has depreciated 150k or more…some large amount, a lot of people EVEN THOUGHT THEY ARE FINANCIALLY ABLE TO MAKE THE PAYMENTS may just saw screw it, and walk away. they might rather just eat the foreclosure, and let hte bank have the house and not have the “loss” to deal with. they’ll go rent something, wipe their hands of the house, and figure since i dind’ tput anythign down, i din’d tlose anythign..in fact, many of them might feel that while walking away is morally a bad thing, that they are making the wisest financial move they can as the house is SO UNDERWATER that keeping it is financially unwise….
smart, educated, and financially solvent people may start walking from their houses b/c they think it is the best thing to do… when that starts happening…when you have the ARM resets who should never have bought in the first place walking awawy, you have one problem..but when the people who COULD afford are also walking away..then you’ll have another wave of problems… and if everyone starts doing it, there will be less and less psychological “stress” for getting foreclosed on.. it will be “no big deal” to people if/when it gets so commonplace.
