There is a HUGE difference between an original “purchase money” loan and a REFI loan, regardless of cash taken out or not.
In most cases, a purchase money loan is NON-recourse debt.
The loan is secured by the property only. You can walk, and it will be on your credit report for 7 years.
There is some talk of getting an IRS 1099 for debt relief, but it may not be true.
With a REFI loan, it is recourse debt, which means the lenders servicing unit can come after you for any loss and deliver the 1099 for any amount that is written off.
What could happen and what actually does happen is two different things.
The real question is what is the threshold of pain for a borrower with a 750-800 score who owes $600K on a home worth $400K.. at what point will a prime borrower walk ??
