If underwater borrowers follow Jim Cramer’s advice to "walk away", it looks like we’d see an exodus of biblical proportions:
NEW YORK (Reuters) – One-tenth of U.S. homeowners hold mortgages that are larger than the worth of their homes, Moody’s Economy.com said on Friday.
Nearly 8.8 million homeowners, or 10.3 percent, are in over their heads, its chief economist, Mark Zandi, estimates.
As a result, millions of U.S. homeowners have the incentive to abandon their properties.
Thinking of moving? Sounds like you’d better reserve the U-haul now.
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I’m not a Kramer fan, but.it really does make sense to just walk away. I know someone with a $4,300/month mortgage, going through a divorce, who’d love to sell but still thinks someone will give her the price she wants so she can pay back her father (who put money toward the deposit).
I told her to talk to the bank about just getting rid of it, and then rent a house for $2,500/month. She could save $20,000/year to give her father.
I sold in the summer of 2005, thinking I’d do nicely when the bubble burst but prices really do drop slowly (even though they’ve dropped 20% since then). It’s also sad seeing people and financial institutions fall apart. It’s not such a great win for me.
Holy Shnikeys!!!
What’s a Shnikey? Is it worse than a Schiester? Or akin to a Snooker? Perhaps a Slinkey? And if it’s Holy say 3 hail mary’s and kiss your home goodbye.
Interesting, ten percent of borrowers nationwide, underwater…… wanna bet that number in Phoenix is closer to 30 percent?
I’d like to see how they calculated that, anyway.
Oh, and here’s the future use of the exurb that will formerly be known as Anthem, and other Phoenix exurbs. Solar power.
Apparently, a big plant can power 70k homes. So, to completely power Phx metro, you’d only need several hundred of these plants.
http://www.cnn.com/2008/TECH/02/22/solar.plant.ap/index.html
The Saudi Arabia of solar. Sure.
There has been an increase in the people who CAN afford to pay their mortgages just walking away, because they feel their houses are now worth less that what they paid for them. Lenders are becoming aware of this trend, and are gearing up for major legal actions to combat it. Many borrowers are unaware of the fact that they can be sued for the difference between the amount they owe on the mortgage, and what the lender will get for the property at auction or sale. A judgement can then be entered against the borrower, and their other assets (bank accounts, real estate, etc.) can be frozen or encumbered, as well as their credit ratings being seriously damaged. I think we will see a skyrocketing rise in these legal actions and judgements in the near future, as lenders do everything possible to fight huge mortgage losses.
Ten percent is a gross, gross understatement at best! Look at all the repossed vehicles! There are so many, there are no place to park them, and they’re auctioning them off for cents on the dollar. People are walking away from their homes and their cars literally!
Some are getting less expensive homes, and cars before they default, then just walking away from the big expensive house and the big expensive car payment, leaving another foreclosed home, another repo’d vehicle. Apparently they don’t care about their credit because they’re now better off financially, and couldn’t care less about the old credit score.
And speaking of credit scores, how are the credit bureau’s keeping track of this housing and credit crisis?
In response to WizeOne, depends on the state. I checked with an attorney and read the AZ statutes. There is something known as an anti-deficiency clause, which essentially means if the purchase of your home is your primary residence, and the entire loan was used to purchase the property (not refinance to buy a car or remodel, etc.), the lender has no recourse on any of the borrower’s personal assests except the primary residence, even a secondary lender. This has held up in AZ case law for the past 35 years. Thus, walking away can be a smart financial decision. And if the lender could come after personal assets, filing bankruptcy would stop that in its tracks. I only know because I’m in this same mess with everyone else and did some research. However, I am not an attorney and would welcome any expert opinions in real estate law.
Speaking of credit scores…
The average national credit score is declining rapidly. So the credit bureaus, at behest of the banks, have come up with an new flag on the bureaus: The “PNE” flag – potential negative equity. They’ve queried their databases to find homedebtors who opened mortgages between 2002 and 2007 and in some cases, have dropped their scores 100 points. The banks are asking the bureaus to better inform them of potential default by adjusting credit scores downward for maxed out borrowers – and the bureaus are responding. Until this new ‘feature’ is implemented, however, banks have constricted lending and lowered credit lines.
But it doesn’t mean much for your good credit score, unfortunately, since banks will soon not have any money to lend – at any score. Can you say “insolvent”?
leggo
Biblical proportions… rains of toads, pillars of salt, pestilences, tongues of fire. Apocalyptic horsemen… beautiful stuff.
But can someone point me at the ‘real estate finance’ section of the bible? Is it ‘Book of Brokerages, sections I and II?”
It must have been in the Catechism class I missed.
Does anyone here remember the kind of mortgages we had between 1979 & 1986? The typical interest rate was 13-14% fixed for 30 years. Typical down payment was 10%. There was no credit checking, but plenty of varification of income, employment and assets – in other words – full documentation.
So we’ll all just go back to those types of loans. Buyers forget that we’ve been spoiled with easy to get loans for the past 20 years. With so many foreclosures and deliquencies, everyone will be a bad risk and credit will be impossible to obtain based on FICO score.
Therefore business will no lonter use FICO to get business. Rather than credit-worthiness, loans will be awared according to collateral-worthiness. Hard money lenders are making a killing making 15%, 17% and even 25% on loans collateralized by real estate.
Banks will wise up soon and get in on that action. Credit is not gone. It will just revert back to the way things used to be. Perhaps I’m just an old fart among the young who don’t recall because you were still in 4th grade at the time?
Deal Hunter-
“Real estate amnesia” has become a national plague. I never cease to be amazed at the number of people who are obviously older than me that don’t remember all the problems during the S&L bust.