When we read the current blog by Brian Tutas on whether walking away from an underwater home was morally wrong or good financial sense, we couldn't help but reflect on the same research on this topic that he referenced. Researchers from Northwestern and the University of Chicago studied housing in Massachusetts and came to the unsurprising result that the more a homeowner is drowning in an upside down mortgage, the more likely he is to default.
It seems that 15% is the magic number. When the housing value is 15% less than the amount of the mortgage, people start walking. Even if they can afford to pay the mortgage, 17% would leave if the difference was 50%. People under 35 and over 65 don't see this as moral issue. The researchers found different attitudes about this based on race, educational level, and region. They concluded that as more people defaulted, the morality issue would diminish.
In Las Vegas, this is a big issue as 1 in 64 homes is underwater. For a realtor®, the question becomes: what role do we take in influencing in underwater homeowners to leave their homes?
We work with many people a sneeze away from foreclosure. We carefully counsel them about the choices they have available to them to avoid foreclosure. We make sure they know that foreclosure alternatives will have credit consequences but may relieve their stress and allow them to move on to the next stage of their lives feeling more in control of the situation. If the subject of walking away comes up, we discuss the consequences, but don't direct the choice they make.
Like all realtors®, we have a dilemma. Selling homes is linked with the ability to have the purchase financed. Lenders expect borrowers to enter into mortgage agreements in good faith. It is true that there was a lack of good faith in many quarters over the last years, but "good faith" - where the lender lends and the borrower promises to pay back the loan - is a necessary component of the system.
Desperate times might call for desperate measures. Whether some people were greedy or a victim of circumstances is immaterial. Personally, we see the need for a solution that will dry up the underwater mortgage issue and feel minimal sympathy for the banks. The question remains, is it our job as realtors® to encourage walking away even if the numbers add up to that solution?
Need help to prevent foreclosure? For more information on the Home Affordable Refinance Program, visit makinghomeaffordable.gov or call 1-888-995-HOPE. The N&Y Team can help you find the right direction.
N & Y Team
Nebi Adhanom Direct: (702) 277-9922
Yonas Woldu Direct: (702) 236-8997
Fax: 702-898-9738
www.VegasRealProperty.com
Click here to get a market snapshot of your home value!
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I have told people to walk away. It is simply a business and financial decision. Morally or ethically is it right? Maybe not. But you are only hurting the banks who don't give a sh#! about us. Protect yourselves and your family is what I tell people. Getting back on the financial bath soon is the best choice you can make for your family.