HLS, in the debates currently raging about how to bail out homeowners, the majority view is that underwater homeowners who don’t pay according to the terms of their loan should receive only mild penalties. Mad Jim Cramer has already given his mail-back-the-keys advice to all and sundry.
If I were lending my own money for someone else to buy a $800K California home, I’d notice all these debates, and I’d figure out that the buyer has a lot more incentives to walk, or demand a huge loan mod, than pay me what he promised if the home price dropped by 30% in the next 2-5 years. And that’s assuming I had an appraisal I could trust, something most mortgage investors don’t have.
For how much longer will the mortgage investors be dumber than little ol’ me? Surely not forever. The days of less than 20% down in S Cal have to be limited. The credit quality of the borrowers won’t have much impact.
