“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.
